LASTMINUTE COM PLC - 20-F - 20040331 - KEY_INFORMATION
ITEM 3. KEY INFORMATION
Selected Financial Data
The
selected consolidated financial data set forth below should be read in conjunction
with, and are qualified in their entirety by, reference to the consolidated
financial statements and notes thereto included elsewhere in this Annual
Report.
The
selected consolidated financial data are derived from the consolidated financial
statements of the Group, which have been prepared in accordance with UK GAAP
and audited by Ernst & Young LLP, our independent auditors. As applied
to our financial statements, UK GAAP and US GAAP differ as described in note
30 of notes to the financial statements.
US
dollar amounts have been translated at the noon buying rate on February 13,
2004 of $1.8830 = £1.00 solely for convenience.
Profit and Loss Account Data:
Year ended September 30,
1999
2000
2001
2002
2003
2003
(£)
(£)
(£)
(£)
(£)
($)
(in thousand,
except shares and per share and per ADS amounts)
Total Transaction Value (1)
2,647
34,189
124,210
245,971
552,445
1,040,254
Turnover
Group and share of joint ventures
195
3,740
18,416
35,077
190,705
359,098
Less share of joint ventures
—
—
(47
)
(187
)
(2,311
)
(4,352
)
Continuing operations
- Ongoing
195
3,740
18,369
34,890
59,734
112,479
- Acquisitions
—
—
—
—
128,660
242,267
Group turnover (2)
195
3,740
18,369
34,890
188,394
354,746
Cost of sales
18
401
1,165
1,626
87,447
164,663
Gross profit
177
3,339
17,204
33,264
100,947
190,083
Operating costs
Product development
1,398
9,951
7,800
6,081
5,900
11,110
Sales and marketing
1,597
20,711
27,207
21,932
62,966
118,565
General and administration
1,716
10,811
15,787
12,577
22,129
41,669
Operating costs before depreciation
and goodwill amortisation
4,711
41,473
50,794
40,590
90,995
171,344
Depreciation
33
1,317
8,744
9,781
14,798
27,865
Goodwill amortisation
—
—
14,660
18,666
42,261
79,577
Total operating costs
4,744
42,790
74,198
69,037
148,054
278,786
Operating (loss)/profit
Continuing operations
- Ongoing
(4,567
)
(39,451
)
(56,994
)
(35,773
)
(53,731
)
(101,175
)
- Acquisitions
—
—
—
—
6,624
12,473
Group operating loss
(4,567
)
(39,451
)
(56,994
)
(35,773
)
(47,107
)
(88,702
)
Share of operating loss in joint
ventures
—
(75
)
(196
)
(413
)
(183
)
(345
)
Share of operating loss in associate
—
—
—
(4
)
(5
)
(9
)
Goodwill amortisation arising
on an investment in an associate
—
—
—
(148
)
(592
)
(1,114
)
Total operating loss: group
and share of joint ventures and associate
(4,567
)
(39,526
)
(57,190
)
(36,338
)
(47,887
)
(90,170
)
Continuing operations:
- Exceptional costs of a fundamental
reorganisation
—
—
—
(3,094
)
—
—
Loss on ordinary activities
before interest and taxation
(4,567
)
(39,526
)
(57,190
)
(39,432
)
(47,887
)
(90,170
)
Interest receivable
68
3,777
3,480
1,419
1,402
2,640
Interest payable and similar
charges
(1
)
(41
)
(36
)
(62
)
(1,222
)
(2,301
)
Loss on ordinary activities
before taxation
(4,500
)
(35,790
)
(53,746
)
(38,075
)
(47,707
)
(89,831
)
Tax on loss on ordinary activities
—
—
158
(6
)
62
117
Loss for the financial period
(4,500
)
(35,790
)
(53,588
)
(38,081
)
(47,645
)
(89,714
)
Loss per share — basic
and diluted (4)
(13.51
)p
(36.39
)p
(31.50
)p
(20.15
)p
(17.88
)p
$(0.34
)
Loss per ADS — basic and
diluted (4), (5)
(67.55
)p
(181.95
)p
(157.50
)p
(100.75
)p
(89.39
)p
$(1.70
)
Weighted average number of Ordinary
Shares
outstanding (4)
Total transaction value does
not represent our turnover. Where the Group acts as agent or cash collector,
total transaction value represents the price at which goods have been
sold across the Group's various platforms, net of value added tax. In
other cases, for example the reservation of restaurant tables, a flat
fee is earned, irrespective of the value of goods provided. In such cases
total transaction value represents the flat fee commission earned. Where
the Group acts as principal, total transaction value represents the price
at which products or services are sold across the Group's various platforms,
net of value added tax. This is a UK industry wide measure which clearly
shows the volume of sales going through the business. Management believes
TTV is a useful measure because it includes the total price to the customer
for each product or service and enables like for like comparison across
all products.
(2)
Turnover represents the aggregate
amount of revenue from products sold and it is stated exclusive of recoverable
VAT and associated taxes. Where the Group acts as agent and does not
take ownership of the products or services being sold, turnover represents
commission earned, less amounts due or paid on any commission shared.
Where the Group acts as principal and purchases the product or services
for resale, turnover represents the price at which products or services
have been sold across the Groups various platforms. Turnover also includes
advertising and sponsorship income which is recognised over the period
to whichit relates. Travel turnover is recognised on the date of departure.
(3)
EBITDA consists of Group operating
profit/loss before interest, taxes, depreciation and amortisation. EBITDA
is included because management believes it is a useful additional measure
of performance and allows for meaningful comparison between periods.
EBITDA should not be considered as a substitute for operating loss, net
income, cash flow or other statements of operations or cash flow data
computed in accordance with UK GAAP or US GAAP or as a measure of our
results of operations or liquidity. The EBITDA measures presented may
not be comparable to similarly titled measures used by other companies.
(4)
Shares and per share amounts
have been retroactively adjusted for the 284 for 1 bonus issue of Ordinary
Shares which occurred on February 15, 2000.
(5)
Each ADS represents five shares.
Balance Sheet Data:
At September
30,
1999
2000
2001
2002
2003
2003
(£)
(£)
(£)
(£)
(£)
($)
(in thousands)
Amounts under UK GAAP
Fixed assets
403
72,815
58,025
96,629
151,436
285,154
Current assets
5,063
114,283
57,830
65,793
151,886
286,001
Total assets
5,466
187,098
115,855
162,422
303,322
571,155
Creditors: amounts falling due
within one year
2,289
38,363
26,400
53,690
131,669
247,933
Total assets less current liabilities
3,177
148,735
89,455
108,732
171,653
323,222
Creditors: amounts falling due
after more than one year
—
6,031
—
42
70,620
132,977
Provisions for liabilities and
charges
614
1,410
543
4,114
3,892
7,328
Net assets
2,563
141,294
88,912
104,576
97,141
182,917
Share capital
3
1,505
1,733
2,360
2,969
5,591
Amounts under US GAAP
Total assets
5,466
191,338
118,892
170,954
357,398
672,980
Redeemable preferred stock
6,462
—
—
—
—
—
Net (liabilities)/assets
(3,903
)
146,222
91,975
113,393
176,239
331,858
Share capital
1
1,505
1,733
2,360
2,969
4,934
Non-financial Operating Data:
Non-financial
operating data are prepared to enable the Directors to monitor the Company’s
performance and manage the business.
Year ended
and at September 30
1999
2000
2001
2002
2003
Number of items sold in the
period (1)
23,866
312,912
806,155
1,719,362
3,473,595
Number of registered subscribers
at the period end (2)
364,750
2,850,678
4,208,484
6,443,381
7,745,058
Number of customers at the period
end (3)
10,189
156,196
536,446
1,277,887
2,763,289
Number of suppliers at the period
end (4)
548
9,221
9,286
14,454
15,514
__________
(1)
An item sold is an individually
priced product or service purchased by a customer within the period.
(2)
Registered subscribers are
users of our website who have submitted their e-mail addresses and other
data and have elected to receive lastminute.com’s weekly e-mail.
This does not include users who register with the Company, but elect
not to receive its weekly e-mails. Since lastminute.com counts its registered
subscribers based on their e-mail addresses, users who registered multiple
times using different e-mail addresses will count as multiple registered
subscribers. For example, if a user has registered with lastminute.com
using an e-mail address at work and one at home, the user will be counted
as two registered subscribers.
(3)
The number of customers is
the cumulative number of unique customers (excluding repeat customers)
since the inception of lastminute.com and the cumulative number of Degriftour,
Travelselect.com, Destination Group, Travelprice.com, eXhilaration and
holiday autos unique customers (excluding repeat customers) since October
2000, April 2002, June 2002, July 2002 , November 2002 and March 2003
respectively. Customers are defined as individuals who have purchased
goods and services over lastminute.com Group’s platforms.
(4)
The number of suppliers includes
individual airlines, hotels, holiday package suppliers, entertainment
vendors, gift suppliers, restaurants, specialty service suppliers and
car hire.
We
have not paid cash dividends to our shareholders, and we currently do not
expect to pay cash dividends for the immediate future. This is consistent
with the intentions of the Group set out in the Registration Statement filed
in connection with our Initial Public Offering (“IPO”) in 2000.
We expect that all available cash from operations will be used to finance
the growth and development of our business and to meet our projected capital
and other expenditure requirements.
Under
English law, any payment of dividends would be subject to the Companies Act
1985 of Great Britain, which requires that all dividends be approved by our
Board of Directors and, in some cases, our shareholders. Moreover, under
English law, we may pay dividends on our shares only out of profits available
for distribution determined in accordance with the Companies Act and UK GAAP.
In the event that dividends are paid in the future, holders of the ADSs will
be entitled to receive payments in U.S. dollars in respect of dividends on
the underlying shares in accordance with the Deposit Agreement.
Exchange Rate Information
A proportion
of our assets, liabilities, revenues and expenses are denominated in currencies
other than pounds sterling. Accordingly, fluctuations in the value of the
pound sterling relative to other currencies can have a significant effect
on the translation into sterling of non-sterling assets, liabilities, revenues
and expenses.
The
following table shows, for the periods and dates indicated, certain information
regarding the US dollar/pound sterling exchange rate, based on the noon buying
rate, expressed in US dollars per £1.00.
Fluctuations
in the exchange rate between the pound sterling and the US dollar will affect,
among other things, the US dollar equivalent of the pound sterling price
of our shares on the London Stock Exchange, which is likely to affect the
market price of our ADSs on the Nasdaq National Market.
Year ended September 30,
Period end
US$
Average rate
US$(1)
High
US$
Low
US$
1999
1.65
1.63
1.72
1.55
2000
1.48
1.55
1.68
1.40
2001
1.47
1.44
1.50
1.37
2002
1.57
1.48
1.58
1.41
2003
1.66
1.61
1.68
1.54
Month
August 2003
1.58
1.59
1.62
1.57
September 2003
1.66
1.62
1.66
1.57
October 2003
1.70
1.68
1.70
1.66
November 2003
1.72
1.69
1.72
1.67
December 2003
1.78
1.75
1.78
1.72
January 2004
1.82
1.83
1.85
1.79
February 2004 (through February
13, 2004)
1.88
1.86
1.89
1.82
__________
(1)
The average rate is the average
of the noon buying rates on the last day of each month during an annual
period and the average of the noon buying rates on each day during a
month period.
The
risks described below, should be carefully considered as our business, financial
condition or results of operations could be materially adversely affected
by such risks. Additional risks not presently known to us, or that we currently
deem immaterial, may also impair our business operations.
Declines or disruptions in the
travel industry generally could reduce our turnover
A large
proportion of our total transaction value is driven by the trends, including
seasonal fluctuations, which occur in the travel industry, including the
airline, hotel, car rental and package holiday industries. As with the other
products and services we offer, the travel industry is highly sensitive to
business and personal discretionary spending levels and tends to decline
during general economic downturns. In addition, other adverse trends or events
that tend to reduce travel are likely to reduce our gross profit, including:
•
increased prices in the airline, hotel, car
rental or other travel-related industries;
•
shortages in the supply of lifestyle tickets
available to the Group due to unusually high demand;
•
increased occurrence of travel-related accidents;
•
airline or other travel-related strikes;
•
regional hostilities, war and terrorism;
•
political instability; and
•
poor weather conditions (including exceptional
local weather).
We continue to face competition
and if we are unable to compete effectively we may be unable to maintain
or expand our unique customers and we may lose customers
If
we are unable to adequately respond to the competitive challenges we face
or establish a sustainable competitive advantage, we may be unable to maintain
or expand our customers and we may lose market share. The markets for the
products and services offered on our websites are increasingly competitive.
As we compete with various companies across numerous product and service
categories, we may be unable to predict or adequately plan for the strategies
of our existing competitors. We may be unable to respond quickly or adequately
to the changes in the marketplace brought on by new product and service offerings,
the introduction of new website features and functionality, and the marketing
and promotional efforts of our existing competitors or new competitors. We
also expect that we will be continually challenged by new and existing competitors
who may have longer operating histories, larger customer bases and greater
brand recognition. In addition, our competitors may have significantly greater
financial, technical, marketing and other resources than we do. Furthermore,
our competitors may be established in a country or market prior to our entry
or may replicate and successfully execute a business plan similar to ours.
Any of those occurrences may increase our entry costs and decrease our ability
to compete effectively.
We
compete with both traditional and web-based distribution channels. In the
travel industry, we face competition from airlines, traditional travel agents
and on-line travel agents. In the entertainment industry, we face competition
from traditional distribution channels, such as venue box offices and ticket
shops, and on-line distribution channels. In connection with our ability
to provide gifts and auctions, we face competition from popular stores, well-known
auction houses and well-established on-line vendors.
In
addition, given the recent alliances forming in the travel industry among
airlines and hotels, it is possible that major airlines and hotels not participating
in our service could exert pressure on other alliance partners not to supply
us with airline tickets or hotel bookings. Alternatively, the alliance partners
could establish their own e-commerce websites or other similar services to
bundle their branded or unbranded products. If any of these events were to
occur, they could have a negative effect on the breadth of products and services
we offer and our turnover.
We
have experienced losses in each year since our inception on April 1, 1998
and in the period from April 1, 1998 to September 30, 2003 we have incurred
losses of £103.5 million before goodwill amortisation of £76.3
million, which resulted in total losses for that period of £179.8 million.
We
had a net cash inflow from operating activities in 2003. EBITDA was positive
for the first time in 2003, although operating results after depreciation
and goodwill amortisation continued to show an operating loss. However, if
we are not able to increase turnover, maintain margin levels, or control
our cost base we will not be able to reach operating or total profitability.
If we do not maintain our relationships
with suppliers, we may be unable to increase the attractiveness of our
services or provide satisfactory services to our registered subscribers,
which would limit our potential market share
Some
of our suppliers, such as airlines, offer their products or services directly
to consumers through the Internet and may not use our website. Although we
are not aware of any airlines having decided to concentrate exclusively on
offering last minute services through an Internet-based platform, a number
of airlines now offer Internet-based travel services. These initiatives could
prove to be a serious threat to our supplier base and one of our product
categories.
Our
business model relies on our relationships with suppliers to increase the
number and variety of products that we offer and provide additional services
and content to attract new users. Despite the growth in size of our business
giving us buying power within the market, supplier relationships are fundamental
to our success. In turn, we believe a large customer base encourages our
suppliers to accept our website as an efficient and profitable distribution
channel for their products and services and to expand their use of it. If
we do not maintain the quality of our supplier relationships, the number
and breadth of products and services we offer could significantly decrease.
As a result, we may be prevented from increasing the attractiveness of our
services to our customers, which would limit our potential market share.
Although
we have either formal contracts or letter agreements with the majority of
our suppliers, not all of our suppliers are under an obligation to offer
their products and services through our website. It is possible that suppliers
may choose not to distribute their products and services through our website,
or through the Internet at all. Suppliers could elect to terminate our contracts
at any time or upon short notice, pursue relationships with our competitors,
develop or acquire services that compete with our services or sell exclusively
through other sales and distribution channels.
In
addition, we rely on our suppliers' computer and distribution systems. Any
interruption in the services of these computer and distribution systems or
deterioration in our suppliers' services will negatively affect our customers'
perception of our services. If the products and services that we are able
to offer are not well received by our customers, our reputation could be
damaged and our gross profit could decrease.
If our systems are unable to provide
acceptable performance as the use of our services increases, we may not
be able to attract new customers and suppliers and may lose existing customers
and suppliers to our competitors
If
we are unable to provide reliable, real-time access to our information systems
for our customers and suppliers, we may not be able to attract new customers
and suppliers and may lose our existing customers and suppliers to our competitors.
As our operations grow in both size and scope we will need to continuously
improve and upgrade our systems and infrastructure to maintain and improve
the reliability, security and speed of, as well as access and availability
to, our website.
Historically,
we have at times experienced slow delivery times, unreliable service levels
or insufficient capacity. We have also experienced relatively brief computer
system interruptions, and these interruptions may recur. Our servers are
vulnerable to computer bugs, viruses, physical or electronic break-ins and
similar disruptions. Our systems and operations are also vulnerable to damage
or interruption from a number of sources, including fire, flood, power loss,
telecommunications failure, physical and electronic break-ins and other similar
events. Any substantial disruption of this sort could significantly impair
our ability to generate sales from our website.
Recent acquisitions may have adverse
effects on our business
We
have made a number of acquisitions of companies in the last financial year.
These acquisitions involve certain risks that may adversely affect our business
in several respects. For example, the integration of the acquired companies
requires significant attention from our management, which could have an adverse
affect on our ability to manage our business and could increase our losses.
As
expected, the internal controls in a number of the smaller acquired businesses
were not as mature or robust as required in a public company because they
were typically small growing entrepreneurial businesses. Management has worked
on improving these controls during the year and believe they will be strengthened
further as all businesses are moved to Oracle in the next financial year.
In
addition, our recent acquisitions aimed to improve distribution channels,
increase market share and bring synergies to various areas of the business.
There is a risk that those expected synergies may not be realized and our
cost base may not be reduced to the extent anticipated. Finally, the impact
of integration of acquired companies on our cultures, policies and locations
may cause disruption affecting both our TTV and our margins.
Rapid growth may cause control
issues if the risk is not managed correctly
Following
46% organic growth and in excess of 100% growth through acquisition year-on-year,
there is the ongoing risk that control may be lost. Problems may be addressed
reactively rather than pro-actively as senior management seeks to maintain
control over the rapidly grown business. For example acquired businesses
do not normally use the same systems as us, so unless we integrate efficiently,
there may be reporting issues, or our current systems may not be robust enough
to cope with our current level of organic growth.
We will be less competitive in
our industry if we are unable to attract, retain and motivate key individuals
and highly skilled employees
While
we have employment agreements with restrictive covenants with each of our
executive officers and other key employees, these agreements do not prevent
these executives from terminating their employment at any time. As a result,
these executives may elect to pursue other opportunities at any time. The
loss of the services of any executive officer or other key employee could
adversely affect our business.
In
addition, as our business has expanded, we have needed to add new information
technology and engineering personnel to maintain and expand our website and
systems and customer support personnel to serve our increased customers base.
If we become unable to hire and successfully train sufficient employees or
contractors in these areas, users of our website may have negative experiences
and we may lose customers, which could decrease our gross profit and the
value of our brand.
We rely on services from third
parties to carry out our business and to deliver our products to customers.
If there is any interruption or deterioration in the quality of these services
our customers may not continue using our services
We
rely on third-party computer systems and third-party service providers, including
the central reservation systems of airlines and hotels and our marketing
partners, to make airline tickets and hotel room reservations and credit
card verifications and confirmations, to host our website and to advertise
and deliver the products sold on our website to customers. We also rely on
third-party licenses for the software underlying our technology platform.
Any interruption in our ability to obtain the products or services of these
or other third parties or a deterioration in their performance could impair
the timing and quality of our own service. If our service providers fail
to deliver high-quality products and services in a timely manner to our customers,
our services will not meet the expectations of our customers and our reputation
and brand will be damaged. Furthermore, if our arrangements with any of these
third parties are terminated, we may not find an alternative source of systems
support on a timely basis or on terms as advantageous to us.
Our operating results may fluctuate
and be difficult to predict, and if we fail to meet the expectations of
securities analysts or investors, the market price of our shares and ADSs
may decline significantly
If
our operating results fall below the expectations of securities analysts
or investors, the trading price of our shares and ADSs may decline significantly.
Since our operating results may fluctuate and be difficult to predict, we
believe that quarter-to-quarter comparisons of our operating results may
not provide a good indication of our future performance.
Our
quarterly operating results may fluctuate significantly in the future due
to a variety of factors, many of which are outside our control. These factors
include:
•
any change in the mix of products
since some of our offerings, such as gifts, earn higher commission rates
than others, such as airline tickets; and
•
seasonal and economic patterns
and trends which affect the different markets for the products we offer.
A decline in commissions or the
availability of our merchant rates or the elimination of commissions could
reduce our gross profit
Currently,
the principal source of our gross profit is commissions or merchant rates
paid to us or provided to us by suppliers for bookings or purchases made
through our website. If current industry standard gross margins decline or
otherwise change or if our suppliers reduce their commission rates or eliminate
commissions entirely, it is possible that our gross profit would be reduced.
Travel suppliers are not obligated to pay any fixed commission rate for bookings
or purchases made through our website and, as a result, the level of our
commissions may fluctuate. Moreover, commissions in the airline industry
have been falling over the past few years.
We
generally earn industry standard commissions on most of the products we offer
on our website, which vary by industry segment. Commission rates in jurisdictions,
other than the United Kingdom, in which we operate may be based on fixed
amounts rather than stated as a percentage of the total value of the product
or service sold, which may cause turnover to be lower in those jurisdictions
than in jurisdictions where commissions are paid on a percentage basis.
Rapid technological changes may
render our technology obsolete or decrease the competitiveness of our services
If
our competitors introduce new services that employ new technologies, or if
new industry standards and practices emerge, our existing website and proprietary
technology and systems may become obsolete. The Internet and the e-commerce
industry are rapidly changing. In particular, the on-line travel industry
is characterised by increasingly complex systems and infrastructures. Unless
we are able to respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis we may not be able to
respond to competitive challenges.
We
may also use or procure new technologies ineffectively or we may fail to
adapt our website's transaction-processing systems and network infrastructure
to customer requirements or emerging industry standards. If we face material
delays in introducing new products, services and enhancements, our customers
and suppliers may not use our website and we may be at a competitive disadvantage.
If either we or our third-party
ticketing agents lose licence accreditations, we may experience temporary
difficulty in furnishing tickets to our customers
In
certain jurisdictions, we use third-party ticketing agents to furnish our
customers' airline tickets for flight reservations made through our website.
Each country where we operate has its own travel agent licensing requirements
that either we or, depending on the jurisdiction, our ticketing agents must
meet to operate as a travel agent and to furnish airline tickets. If either
we or any of our third-party ticketing agents were to lose the relevant licences
or accreditations, we may not be able to furnish tickets to our customers
until we located a substitute agent to provide ticketing services. Furthermore,
the terms and conditions of any substitute arrangements may not be on the
same terms or on terms as favourable as our current arrangements.
Our strategy to develop internationally depends on our ability to develop an adequate international supplier and customer base, and if we fail to attract sufficient international demand for our services, our growth will be limited and our operating results may be harmed
We launched our website in France, Germany and Sweden in 1999, and in Spain, The Netherlands and Italy in 2000. The acquisitions in September 2000 of the Degriftour Group in France and at the end of July 2002 of the Travelprice.com Group, which operates in France, Belgium, Italy and Spain, form part of our strategy to further expand our business in continental Europe. In 2003 our acquisition of holiday autos increased our scale in Germany and gave us a significant business presence in Scandinavia. We may pursue expansion through further acquisitions or otherwise. If we do not develop adequate local supplier or customer bases we do not believe that the local versions of our website will be accepted as a viable market
for our products and services in these or other European countries. In this case, our growth will be limited and our operating results may be harmed. We continue to invest in promoting our websites in France, Germany, Sweden, The Netherlands, Spain, Belgium and Italy.
We are also exploring opportunities to expand into other markets. We established joint ventures with Travel.com.au in Australia and New Zealand in March 2000 and Tourvest in South Africa in May 2000. In August 2000, lastminute.com was launched in the Australian market. In September 2001 we completed a joint venture agreement with Sol Melia Travel SA in Spain, repurchased in September 2003. We also announced a joint venture partnership in January 2002 with Kinki Nippon Tourist Co. Limited, Nippon Travel Agency Co. Limited, Japan Efund, Mitsubishi Corporation/MC Capital fund and Credit Saison Co. Limited, establishing an e-commerce business in Japan. If these joint ventures do not develop an adequate supplier or
customer base we do not believe that the local version of our website operated by these joint ventures will be accepted as a viable market for our products and services, in which case our growth may be limited and our operating results may be harmed.
Our future turnover and operating results depend upon consumers continuing to access our website from the United Kingdom, France, Germany, Sweden, Belgium, The Netherlands, Italy, Spain, Australia, South Africa, Japan and, over time, other parts of Europe and elsewhere.
Our international operations involve risks relating to purchasing, travel patterns, practices and Internet-based commerce in foreign markets, and if we are unable adequately to address these risks, the growth of our international operations will slow down
In order to achieve widespread acceptance in each country in which we operate, we believe that we must tailor our services to the unique customs and cultures of that country. Learning the customs and cultures of various countries, particularly with respect to purchasing and travel patterns and practices, is difficult and our failure to do so adequately could slow our growth in those countries.
We also face risks specific to Internet-based commerce in foreign markets. Among others, any of the following international risks could delay our international growth and harm our operating results:
•
delays in the development of the Internet
as a medium of commerce in international markets;
•
delays in the development of the backbone
and bandwidth of the Internet;
•
difficulties in managing operations due to
distance, language and cultural differences;
•
consumer unwillingness or inability to use
credit cards or other similar modes of payment, like smart cards;
•
unexpected changes in regulatory requirements;
•
tariffs and trade barriers and limitations
on fund transfers;
•
difficulties in staffing and managing foreign
operations;
•
exchange
rate fluctuations;
•
increased risk of piracy and limits on our
abilities to enforce our intellectual property rights; and
•
brand confusion where similarly named ventures
already exist.
If the growth in the use of the Internet by consumers and businesses for e-commerce does not continue or declines, our business will not succeed and the value of our shares and ADSs will decline
Our future gross profit and operating results depend upon the widespread acceptance and use of the Internet and on-line services as a medium for commerce throughout Europe and elsewhere. Acceptance of the use of on-line services in turn depends in part on acceptance of the Internet as a secure environment in which to release credit card and other personal data. Rapid growth in the use of the Internet and on-line services may not continue. The growth in use of the Internet by consumers for e-commerce purposes may not continue or use may decline. Demand for and market acceptance of recently introduced products and services over the Internet as well as Internet security is subject to a level of uncertainty.
Our success will depend on the development and maintenance of an infrastructure to cope with the Internet's increased traffic. We believe that a reliable network backbone with the necessary speed, data capacity and security, which may be accessed in a cost effective way, and the timely development of complementary products for providing reliable Internet access and services are essential to the development of the Internet as a vehicle of commerce. Major on-line service providers and the Internet itself have experienced outages and delays. Outages and delays are likely to negatively affect the level of Internet usage and the processing of transactions on our website.
Consumers may also find that buying products through traditional or other methods may be more attractive or reliable than using our website.
If we fail to increase our brand recognition among consumers, we may not be able to attract and expand our customer base
We believe that enhancing and maintaining the lastminute.com brand is fundamental to our efforts to attract customers and to expand our registered subscriber base, especially since there are a number of websites that offer potentially competing services. Many competing websites already have well-established brands in on-line services or the travel industry generally. Promotion of our brand may well depend on personal recommendations and repeat business based on our success in providing a high-quality on-line experience supported by a high level of customer service. Our marketing and advertising expenditures may not be effective to support our brand. Even if recognition of our brand increases, it may not lead to an
ongoing increase in our customer base.
We may be unable to acquire or maintain domain names, or prevent third parties from acquiring domain names that are similar to, infringe or otherwise decrease the value of our trade marks and other proprietary rights
We depend on domain names that are consistent with our brand identity to deliver consumers to our website who are familiar with our brand. We intend to continue to acquire domain names as suitable opportunities arise. We may not be able to acquire or maintain the “lastminute” domain name in all countries in which we operate or into which we may seek to expand our operations. Companies with similar domain names and which offer similar products or services to ours may impair our ability to compete effectively on the Internet or use the lastminute.com brand in one or more jurisdictions and, if our brand name is confused with theirs and their products and services are inferior, may dilute the value of our
brand and damage our reputation. Domain names including “lastminute”, but with differing country modifiers which we would wish to use in some of the countries into which we have and may continue to expand, such as www.lastminute.de in Germany and www.lastminute.nl in The Netherlands, are owned by third parties. The acquisition and maintenance of domain names generally is regulated by applicable laws, as they are applied by the courts, governmental agencies and their designees and Internet regulatory bodies. The system for registration is subject to change as the Internet Corporation for Assigned Names and Numbers ("ICANN") assumes increased responsibility for that system from Verisign Inc. and the US Department of Commerce and as new registrars are accredited by
ICANN. The introduction of new domain suffixes is still possible. There can be no assurance that our domain names or their value will not be affected by changes related to the registration and protection of domain names. If we were to lose the exclusive right to use our domain names, or were unable to prevent our brand being diluted through the introduction of new domains or the use of similar domains, our Internet sales may be irreparably damaged because customers may be unable to find our website or may be diverted to other sites. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. Even if we acquire domain names that include “lastminute” in the relevant jurisdictions, we
may be compelled to use a different domain name than lastminute.com. Depending on the laws of a particular jurisdiction, we might not be able to make certain offers under the name or domain name “lastminute”.
If we are unable to protect our intellectual property from copy or use by others, our competitors may gain access to our content and technology
We regard much of our content and technology as proprietary and try to protect our intellectual property rights by relying on trade mark and copyright protection and confidentiality laws and contracts. If we are unable to protect our intellectual property, it would be possible for someone else to copy or otherwise obtain and use our proprietary content and technology without our authorisation or to develop a similar business model independently, which would put us at a competitive disadvantage. There may not be effective trade mark, copyright and confidentiality protection in every country in which our services are made available and policing unauthorised use of proprietary information is difficult and expensive. For
example, French law does not provide for any patent protection for software and know-how.
The steps we have taken may be inadequate to prevent the misappropriation of our proprietary information. Any misappropriation could have a negative effect on our business, our operating results and the value of our brand. Furthermore, in the future, we may need to go to court to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Litigation relating to our intellectual property might result in substantial costs and diversion of resources and management attention.
If we are unable to obtain trade mark registrations for our brands and prevent third parties from using similar names, the value of our brand may be diminished
We may not be able to obtain trade mark registrations in the European Union and in any of the countries in which we operate or into which we may expand. In addition, there may be substantial delays in obtaining registrations. Our application to obtain registered trade mark protection in the European Union for the name “lastminute.com” has met with a number of objections from the European Union trade mark registry that the name is not descriptive of our services and other objections may be received from other relevant trade mark registers or third parties. Furthermore, several competitors in relation to their late booking or late purchase services use the term “last minute”. These two factors
may make it difficult for us to register our name as a trade mark and prevent third parties from using similar names in relation to competing products and services, which may result in dilution or devaluation of our brand.
We may be sued for infringing a third party's intellectual property rights and, if we were to lose our intellectual property rights, we could be unable to carry on our business in its current form or to expand our operations internationally
We could be sued based on a claim that we have infringed the patents, copyrights, trade marks, service marks or other intellectual property rights of a third party. In particular, we are aware of the existence in several jurisdictions of third parties who have company names, trade marks or domain name registrations which are similar to our name. The existence of these third-party company names, trade marks and domain names may have a material effect on our ability to carry on our present operations, or to expand our operations into those jurisdictions..
We have not launched a US or Canadian version of our lastminute.com website, although we may do so in the future. The existence of third-party rights in the United States, Canada and some other jurisdictions may prevent us from operating successfully there under our current brand name, as we are aware of a number of third parties who use the words last minute in their company or business names or domain name registrations. Some of these third parties have also obtained trade mark registrations incorporating the words last minute, and it is possible that any of these third parties may sue us for trade mark infringement or related claims.
If we were sued for infringing the trade mark rights or other intellectual property rights of a third party, it may be costly for us to defend these claims and we may have to pay substantial damages and third-party costs as well as our own legal fees, or discontinue any of our operations, including the use of our domain names, which have been determined to be within the scope of the third party's intellectual property rights. Any of these outcomes could have a negative impact on the value of our brand, our operating results, our ability to implement our business plan and our ability to carry on our business in its current form or to expand our business to new markets.
If we are unable to ensure the security and privacy of the confidential information of our customers, they may discontinue using our services
Any publicised security problems affecting e-commerce companies could inhibit the growth of Internet-based commerce and, accordingly, cause our customers to discontinue using our services and inhibit our gross profit growth. The secure transmission of confidential information over the Internet and the security of our systems, in general, is essential in maintaining consumer and supplier confidence in our services. We rely on licensed encryption and authentication technology to effect secure transmission of confidential information, including credit card numbers.
There have been external instances where unidentified third parties have individually or collectively taken action to deliberately disrupt the operations of major commercial websites similar to ours. If similar action were taken against our website, it could limit our ability to operate our website and damage the systems we use to operate our business, which could have a negative impact on our reputation and our results of operations. A party that is able to circumvent our security systems also could steal proprietary information. Security breaches also could expose us to a risk of loss or litigation and possible liability. Under current credit card practices, we may be held liable for fraudulent credit card
transactions and other payment disputes with customers. In the event of a security breach, the extent to which we may be able to claim against our firewall provider for any losses suffered by us arising out of a failure of our firewall, which is a network device that separates the public Internet from the private network to allow the enforcement of data security policies, is limited and may be insufficient to repair our computer systems or recover our losses.
Government regulation relating to e-commerce may restrict our ability to collect and use data that is of commercial use to us
We may face restrictions on our ability to collect and use personal data and possible civil and criminal sanctions for its unauthorised or improper use
The European Union has adopted a directive which imposes restrictions on the collection, use and processing of personal data. Pursuant to the directive, we need to ensure that we use personal data in the most commercially beneficial way within the provisions of applicable data protection legislation. We currently do this through our registration process and privacy policy, but we may be unable or it may be impractical, to obtain the required consents in the future and this may limit our ability to use personal data.
The directive has been implemented in the United Kingdom through the Data Protection Act 1998, which came into force in March 2000. It has not yet been implemented in some other EU member States in breach of EU requirements. To the extent that existing data protection legislation in those non-compliant member States conflicts with the directive, the provisions of the directive will prevail.
Furthermore, member States have discretion in the implementation of some provisions and any resulting laws may vary to a substantial extent from country to country. We may therefore be obliged to comply with different legislative requirements which could have an impact on our ability to collect and share data with third parties, such as advertisers or suppliers. These requirements could restrict our ability to capture and use data that is of commercial value to us. Failure to comply with data protection legislation in the countries where we operate may leave us open to criminal and civil sanctions. If we breach applicable data protection legislation, we may be subject to claims from our users claiming that we have
infringed their privacy, and we could face administrative proceedings initiated against us by the applicable data protection regulatory authorities. In certain jurisdictions, the regulatory authorities have the authority to levy substantial fines for breaches of applicable interest.
If we are unable to use "cookies", we may be unable to provide targeted offerings
Cookies are pieces of information sent by a web server to a web browser that the browser is expected to save and which can later be used to identify a user. Websites typically place cookies on a user's hard drive without the user's knowledge or consent. We use cookies for a variety of reasons, including collecting data derived from the user's activity while visiting our website, and we currently require users to enable the usage of cookies before they can make purchases from our website. However, most currently available web browsers allow users to remove cookies at any time or to prevent cookies from being stored on their hard drives. Also, users accessing websites using their employers' computer systems may be
restricted in their ability to receive and store cookies by virtue of their employers' security policies. There is a directive relating to processing of personal data and the protection of privacy in the electronic communications sector (the “Electronic Communications Sector Directive”). The Electronic Communications Sector Directive was to be implemented by the member states by October 31, 2003 (in the United Kingdom it was implemented on December 11, 2003 by the Privacy and Electronic Communications (EC Directive) Regulations 2003) as this Directive requires companies in the EU members States to give clear and comprehensive information about the use of cookies prior to using any website, and give the user an option to
refuse such use. In France, CNIL (La Commission Nationale de l'Informatique et des Libertés) has issued a recommendation that the use of cookies should be disclosed to users and that users should be informed of their right to oppose their use and that the misuse of cookies can give rise to criminal liability in certain circumstances. Under the Directive, cookies are to be considered as a means of processing data and will be regulated by the principles of the Directive if data qualifying as personal data is collected. Cookies are now subject to increased levels of legislation limiting or prohibiting their use. Limitations on, or the elimination of, our use of cookies, or obligations on us to allow registered
subscribers to object to the use of cookies could limit the effectiveness of the advertisements that are delivered on our websites and could also limit the effectiveness of our sales and marketing efforts.
Due to our presence on the Internet and operation as an e-commerce website we may be open to civil and criminal sanctions in numerous jurisdictions
E-commerce is new and rapidly changing, and regulation relating to the Internet and e-commerce is new and evolving. The European Union has recently adopted a directive dealing with certain aspects of electronic commerce such as liability for intermediate service providers and electronic contracting and has adopted another directive dealing with electronic signatures. We will need to comply with certain aspects of the directive on electronic commerce, such as information that will need to be provided to consumers in conducting e-commerce. EU member states were expected to implement the directive before January 17, 2002, although not all have done so. The United Kingdom implemented them through the Electronic Commerce
(EC Directive) Regulations 2002 which came into force on August 21, 2002. The European Union's distance selling directive is also applicable to e-commerce and is already required to be implemented by the member states of the European Union. The United Kingdom implemented this directive as the Consumer Protection (Contracts Concluded by Means of Distance Communication) Regulations 2000, which came into force on October 30, 2000. These regulations provide for certain information to be provided to consumers prior to and after concluding a contract over the Internet and further provide consumers with a cancellation period with respect to the purchase of certain goods and services. It is possible that additional laws will be enacted in respect of the sale of goods and services over the
Internet, such as tougher consumer protection laws, which could reduce the rate of growth of e-commerce and could harm our business both directly and indirectly.
France has recently adopted several laws that include provisions specific to Internet and e-commerce such as provisions dealing with the liability of access providers or host providers and provisions dealing with electronic signatures as well as provisions dealing with auction sales of certain types of goods on the Internet. There are a number of other laws and regulations that also indirectly affect e-commerce such as the regulation on encryption or more generally consumer protection (such as the use of the French language and the regulation of distance selling), commercial law (such as the regulation of advertising, pricing and sales practices, lotteries and games), or regulated activities (such as the regulation
of travel agencies) that may place constraints on the integration of the business.
Due to the global nature of the Internet, it is possible that, although the servers and infrastructure used to provide our services are based in the United Kingdom and France and transmission by us of the content over the Internet originates primarily in the United Kingdom, the governments of other countries might attempt to regulate the content of our website or transmissions using our services or might prosecute us for violations of their laws. Any legislation or regulation prescribing the content of our website or transmissions, the application of existing laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of laws and regulations to the Internet and other
on-line services could make it difficult for us to operate our business. Failure to comply with relevant Internet and e-commerce legislation or regulation may leave us open to civil and criminal sanctions.
In addition, the EU Council of Ministers adopted a regulation in December 2000, which came into force on March 1, 2002, regarding the jurisdiction, recognition and enforcement of judgements in civil and commercial matters. This is likely to mean that consumers who are party to on-line contracts will in many cases be entitled to sue in their own jurisdiction irrespective of the location of the contractual counter-party. This is likely to substantially increase costs in the case of litigation, and may have an adverse impact on the development of e-commerce in Europe as a whole.
Under French law, if a web page can be viewed in France, any potential offence which arises out of that web page will be subject to the jurisdiction of the French courts and French law.
Furthermore, in many jurisdictions, marketing and advertising are heavily regulated. Applicable laws in some jurisdictions impose more restrictions on the methods and terminology used to approach prospective customers in relation to the products and services offered. For example, in its report of July 2, 1998 on the Internet and digital networks, the
Conseil d'Etat
, France's highest administrative tribunal, specifically stipulated that the Internet should be considered as advertising space and that existing legal rules should be applied. These rules encompass a wide range of areas, such as rules on the protection of minors, the nature and content of advertising, the regulation of unsolicited email, and the
Loi Toubon
on the obligation to use the French language. These regulations are applicable to web pages, as well as banners, e-mail, icons, sound, text, pictures and even hypertext links. As a result of this type of
regulation, we may have to rely on more conservative marketing methods, may not be able to maintain or increase our market share in those countries or may have to discontinue some of our offerings.
We may be subject to litigation for content provided or representations made on our website, which may be costly and time-consuming to defend
Because users may access content on our website, download our content and transmit it to others over the Internet, we may be subject to intellectual property infringement claims against us as content service providers. Any claims, with or without merit, could:
•
be time-consuming to defend;
•
result in costly litigation; or
•
divert management's attention and resources.
Our website contains links to other websites, which may contain links to further websites. As a result, we may be subject to claims alleging that, by directly or indirectly providing links to other websites, we are liable for intellectual property right infringement or the wrongful actions of third parties through their websites. Due to the combination of windows, deep links and hyperlinks, there is a risk that users will consider us the direct supplier of products and services advertised and offered by our partners on our site.
In addition, successful actions for defamation have been brought against service providers in the past in the United Kingdom, the United States and other jurisdictions in which we operate or may operate in the future. It is also possible that if any information, accessible on our website, contains errors or false or misleading information, or if we are negligent in providing information, third parties could take action against us for losses incurred in connection with such information.
Our general liability insurance will not cover all potential claims of third parties to which we are exposed.
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