[gtranslate]

Loyalty share programme – we bring you the most important figures and forecasts.

READ THE WHOLE ARTICLE CAREFULLY!

Sorry for the long article, but you need maximum information to make the right decision. Today we present a large dose of numbers and information. There is a need simultaneously to explain these numbers. Read carefully to the end!

Are numbers the most important?

Numbers obviously play a role in your decision making. We’re saving the numbers for one of the last articles in our miniseries. We could have presented the numbers and also explained them at the beginning, but it would have been pointless.

The figures below (2010 and 2011 profit and loss) look very bad at first glance (loss), but at first glance they mean nothing. You have to assess everything comprehensively and especially assess the current situation, i.e. with regard to what is built. Those who know how to count and who have an imagination about further developments will immediately get a picture of what the situation will look like in the (near) future. From this perspective, our share subscription is much more attractive than it has seemed so far.

What you need to take into account

Please read the whole article carefully until the end. Don’t take parts out of context. One without the other is meaningless. It’s a long article, but an important one, so read carefully!

We keep double (not fraudulent 🙂 ) accounting. In it, exactly according to the law. We account for depreciation, take into account the so-called. time resolution… Depreciation is also shown in the economic results (for historical data). Depreciation corresponds to the amount invested, because (in layman’s terms) if you invest a lot, you also have high depreciation. Depreciation and amortisation is shown as a minus in the economic result.

At the same time, some of the investments were reflected as a loss, because they are items up to CZK 40,000, which are directly expensed when acquired. These are pieces of equipment, pieces of equipment, materials in the building, and in total they are million dollar items that are directly in the 2010 and 2011 costs.

Explanatory notes to the terms as used below. Everything is simplified to make it understandable to the layman.

Differences between double-entry accounting and tax accounting (formerly simple accounting)
For simplicity (and better understanding for those without knowledge of double-entry bookkeeping), it can be roughly stated that in the tax records you account for all incoming and outgoing payments as they go, regardless of the period to which they relate. You always deal with the actual incoming and outgoing payment. In double-entry bookkeeping, you deal with tax documents regardless of whether or not payment has been received, and you must always accrue income or expenses. This means that you have to include income (and expenses) that fall in one calendar year in the income (and expenses) of that year. Similarly, if you have a payment (or a receipt, whether for income or expense) that carries over from one year to the next, you must prorate for each year. This is exactly what happens, for example, with domains, where the customer pays for the domain for the whole year (for the next 12 calendar months) during the calendar year. You put part of the proceeds into income one year and have to put part into the next year (even if only one payment comes in right at the beginning).

What is a time resolution?
The need for accruals arises from the principle of the independence of accounting periods, which requires that each accounting period should include only those expenses and income that are temporally and materially related to that period (the current principle). (Source: http://www.az-data.cz/slovnik/casove-rozliseni ) . This implies, for example, that the customer pays 1.7. payment for the whole year (12 months) and so the whole amount appears in the revenue* (movements in the bank account) but only half appears in the revenue** of that year (from which profit and loss is calculated) and the other half (attributable to the next year) does not appear in the revenue** until the following year. From that perspective, the loss of a start-up and a growing and investing company is similarly “compounded” in the early years even though cash (or income – account sales) is growing. However, part of it will not appear on your tax return until the following year.

What is depreciation?
Depreciation is an accounting reflection of the amortisation of fixed assets into costs. It is therefore a monetary expression of the impairment of an asset during the accounting period. Unlike a valuation allowance, it is a permanent (irreversible) reduction in the value of an asset in the accounts. (Source: http://www.az-data.cz/slovnik/odpisy ). Simply put, this means that if you buy more valuable assets (over 40 thousand crowns), you must (usually) pay the supplier in full in advance, but only a proportional part is put into costs (from which profit and loss is calculated at the end of the year) (depending on the type of asset, so-called depreciation groups are determined) and you can put only a part into costs, although you have paid everything in advance. More valuable assets are depreciated in this way over a period of 3 to 50 years, depending on the group to which they belong.

* Sales in a specific year
In our case, revenue is the sum of all amounts we receive in our bank account as payments from customers for our services in a certain period or calendar year. You may come across the term revenue or turnover.

** Revenue in a specific year
Revenue is determined by law and, in simple terms, is the income in the bank account plus the accrued income of the previous year (as per the accruals – see above) minus the non-accrued income (as per the accruals – see above).

*** Gain / -Loss
Revenue belonging to the year minus costs (wages, advertising, electricity, connectivity, etc.) belonging to the year minus depreciation.

**** Operating profit
In our case, we consider operating profit as the company’s net sales for a certain period minus the costs incurred for services sold and other operating costs (electricity, wages, connectivity, advertising…). This operating profit does not include income or expenses from other activities (investment = for example, purchases of new servers that we need for the next period).

Further explanation below.

Financial results (in thousands CZK)

Year 2010

Sales: 273 *

Revenue (net of accruals): 249**

Profit / -Loss (after depreciation and accruals): -3,461***

The full financial statements, which include depreciation and accruals, can be downloaded here.

Notes:

we started in the fall of 2010 without a single customer. From the beginning we had everything ready for full operation (development, server management, support).
the loss is caused by construction, investments, depreciation, long preparations for automation

Year 2011

Sales: 13.290 *

Revenue (net of accruals): 8,307**

Profit / -Loss (after depreciation and accruals): -10,353***

The full financial statements, which include depreciation and accruals, can be downloaded here. Tax return here.

Notes:

revenue growth was mainly kick-started in the second half of the year and thus part of the revenue* is transferred to income** as an accrual to 2012
depreciation was 2.468
we got to an operating profit**** in October 2011, until then we were constantly in the negative operationally, because we had fewer customers (and therefore less income*) than we needed to pay all our monthly costs
we completed a major investment in building a datacenter, we upgraded the network to 10 Gbps
all one-off cost items are included in the costs and thus in the loss (purchase of complete office equipment, furniture, warehouse, network wiring, optical network in the data centre)

Year 2012 – first half of the year

We will be looking at this year in more depth. Here we will see progressive growth and already reduced investments, as the company has already acquired virtually everything and is now only buying servers and disk arrays.

Sales for the period 01-06/2012: 13.918 *

of which revenue from domain name registrations and renewals (products where we have no or minimal margin): 5,422
of which income from the sale of services (web hosting, VPS and dedicated servers, where we have – to put it simply – 100% margin): 8.496

Let’s break down our monthly income and expenses. From this we can see what amounts we are in the last six months.

Average monthly income for 1. half of 2012: 2.320

of which revenue from domain name registrations and renewals (products where we have no or minimal margin): 904
of which income from the sale of services (web hosting, VPS and dedicated servers, where we have – to put it simply – 100% margin): 1.416 (for the calculation of operating profit we count only this value)

Average monthly costs for 1. half of 2012: 950

of which salaries: 440
of which promotion costs: 114
of which costs for connectivity and fibre optic routes: 143
of which electricity costs: 125
of which other datacentre operating costs: 25
of which other operating costs: 23
of which other costs: 45
Extra costs (purchase of prizes for competitions, including a car): 35
HW purchases (servers and disk arrays) are not included
the cost of purchasing domains is not included

Average operating profit per month: 466 ****

Operating result for 1. Half of 2012: 2,796 ****

Notes:

for the first half of this year we have more revenue from services than in the whole of 2011
Operating result excludes depreciation and accruals and hardware purchases (servers and disk arrays)
for information, we add that if we had, for example, the current servers, disk arrays, routers and other IT equipment on lease, we would pay installments of about 375 thousand per month. We would therefore achieve a profit of around 91 thousand net profit per month (of course we need to take into account the accrual of services sold). However, we have gone down the route of investing the funds in the company as core capital and so they are not repaid and interest free. For this reason, our profit is higher and is only affected by depreciation and accruals in the early years.

Forecasts

We will try to plan our outlook and plans for the next period.

This year’s full-year outlook can be reasonably accurate, because we have half the year behind us and we can estimate the second half of the year fairly accurately. New services are not included because we don’t yet know what the demand for them will be.

The outlook for the next years (2013 and 2014) assumes growth primarily in the Czech Republic and partly also in Slovakia. We want to launch new services and we also want to offer our services in other languages. That should make our plans come true.

We will not really estimate the next years.

2012 – full-year outlook

Sales: 32.000 *

Operating Profit / -Loss: 5.000****

Profit / -Loss (after depreciation and accruals): 500***

Notes:

this is a realistic estimate, based on the growth progression to date
the estimate is without taking into account new services (WEDOS Disk and others), the sales of which we are not yet able to make a qualified estimate
the projected operating result excludes depreciation and accruals
any surplus will be used to offset losses from previous years
in the second half of the year we are counting on the purchase of another UPS and 2 comarketing campaigns and therefore the operating profit corresponds directly to the multiple of the current situation in the first half of the year
depreciation is expected to be about 4.500

2013 – full-year outlook

Sales: > 65.000 *

Operating Profit / -Loss: > 19,000****

Profit / -Loss (after depreciation and accruals): 5.000***

Notes:

this is a realistic estimate, based on the growth progression to date
partly it is also a matter of including new services (WEDOS Disk and others), whose sales we cannot yet estimate in a qualified way, but we have some idea of how we would like to move
the projected operating result excludes depreciation and accruals

The year 2014 – I guess we are already predicting it from a crystal ball

Revenue: > 100.000

Operating Profit / -Loss: > 40,000****

Profit / -Loss (after depreciation and accruals): 20,000***

Notes:

this is a realistic estimate, based on the growth progression to date
partly it is also a matter of including new services (WEDOS Disk and others), whose sales we cannot yet estimate in a qualified way, but we have some idea of how we would like to move
the projected operating result excludes depreciation and accruals

We can only imagine the years to come…

We will not continue to read from the crystal ball. We’ll leave that to others. We think we’re headed in the right direction.

Growth to double sales (which we will achieve soon)

We continually stress how our growth will affect revenue and profit. We must now show a concrete calculation based on real numbers.

We anticipate that our sales will grow and we will double it in about 10-12 months (compared to the current situation). However, it may be earlier. If we were to launch some new services, we could achieve this in, say, 6-8 months.

What will this mean for us in terms of costs? What will this mean for us in terms of revenue? How will this affect profits? For a better calculation and to leave a margin (that we will not achieve such growth), we will assume only 80% growth in sales.

We’ll have to get new servers. However, these will be paid after about a year of operation or from a share subscription or from operating profit or other financing. The estimated investment in the purchase of hardware for such growth is approximately CZK 7 million. If (as an example) we assume that it would be a lease, we would be paying back about 3% of the value (210 thousand crowns) per month for 3 years.

Our monthly electricity costs will increase by about 75% because the number of servers will not double (backup servers, routers, switches) and the overhead (air conditioning and UPS) per unit will not increase by that much. Electricity costs will increase by a maximum of CZK 100,000 per month.

We will need to recruit approximately 2 new customer support staff, with one on duty all day and the other in the evening to boost support at peak times. We are likely to recruit an administrative person to help us with business and administrative matters, as we do not have anyone to do this yet. We will also leave a provision for any additional salary costs (increase for existing staff or for an additional new staff member). The wage costs will increase by approximately CZK 125,000 per month. With full automation, we don’t need more.

Other costs (advertising) and other overheads will increase by 150 thousand per month (with a large margin). Other costs will not differ significantly (we have no rent, we do not pay off loans, connectivity is 10 Gbps) and so it will be a maximum of 60 thousand crowns per month.

The operating costs will therefore increase from the current average of CZK 960,000 per month to about CZK 1.385 million per month (without taking into account the purchase of the server, which would be about CZK 1.595 million per month).

The operating income from our services, on which we have a margin (i.e. excluding domains), will be (using an 80% increase) at 2,500 per month.

The operating profit will be approximately CZK 1.115 million per month (or CZK 0.905 million if the cost of the servers is included), which means CZK 13.38 million profit per year, or CZK 10.86 million if the cost of the servers is included, which corresponds to approximately depreciation). Thus, for the first three years, it would be possible to consider a lower value of profit and after three years (after the lease is terminated) the profit would be at the higher value.

We currently have an operating profitability (with margin) for services ( excluding server purchases) of about 35%, with 80% growth it will improve to more than 45%. After taking into account the purchase of servers (and thus partly depreciation), it will decrease by about 15-20% (every 5-6 years we count on replacing servers). So realistically (after writing off the investment in setting up and building) our profitability is now at 15-20%, with an 80% increase in sales we will be at around 25-30% and with even higher sales it will be slightly over 30% of turnover. With a higher volume of services sold, profitability will grow even slightly, because other costs (wages, connectivity, advertising…) do not grow proportionally with the growth in turnover.

You can “set” more numbers yourself for when we grow up even more… Conclusion? We have to grow!

Explanation of losses

We are losing a lot at first glance. This is partly due to accruals (in double-entry accounting), but mainly due to large investments. You are depreciating the investment (so it will show up as a minus in profit or loss). If you invest a lot, you depreciate a lot and thus have a more negative economic result. You have to take into account what is an investment (it has value and will generate income in the future) and what is a loss (what you have “eaten”). You also have to take into account the current developments, the outlook for the future. Also, of course, it decides whether you go further into the negative or not. It also makes a difference whether or not you are repaying the investment (by loan or lease)… There’s a lot of…

We also purchased a lot of equipment and materials (etc.) in 2011 that are not depreciated and reflected directly in the costs, thus increasing the overall loss.

For us, it’s essential:

we have been through very little, we were in an operating deficit for a relatively short period of time (about a year) and only because we initially preferred the quality of service (e.g. NONSTOP support) to the current financial advantage
we have invested a lot and this investment (in the datacenter and in quality facilities and equipment and full automation) will bring us income in the future
we have no leases and loans, we have no repayments
we have no leases
we did not buy any unnecessary things, we do not have anything unnecessary in the company (like luxury cars), but all funds were effectively invested
the outlook for the future is favourable and combined with our dynamic growth is more than favourable

Explanation of revenue

What is essential for our income? We have two income groups. The first part of our income comes from the purchase of domains, where we sell them with zero or minimal margin. This first group is used to lure new clients for paid hosting services. The second group is the sale of our services, where we make a 100% margin because it is our services. This second group is the one we need and want to develop.

In addition, we have not factored in any items in our projections that relate to development in other areas. This could be, for example, operating in the virtual operator market or building another data centre of its own. This would bring in additional revenue. We don’t have them yet, so we don’t take them into account anywhere.

What else is important to know?

From next year, we will have our accounts audited by an auditor. So it will be the best way to guarantee that our accounting is in order and there are no “skeletons” or anything that should not be in order. We have already worked with the auditor when we prepared our public subscription.

What is important for the other numbers?

We don’t pay rent, we don’t pay any leases or loans. A major competitive advantage.
We have our own modern datacenter, which is filled to about 8% of its capacity. A major competitive advantage. We can grow significantly without further investment.
We have connectivity (10Gbps), which is used from about 10-12%. There is no problem to increase it at any time. We have a network, including routers, built to full 10Gbps speed. A major competitive advantage.

During this time, we have purchased more than CZK 12 million worth of HW.

Customer numbers are important, but less so than the above figures obtained from the accounts. Currently:

we have almost 100.000 contacts registered, some of them subscribe to our newsletter
As a registrar, we operate more than 80,000 domains, with several hundred more every day
webhosting with us has over 20,000 (active and) paying clients, many of whom have the additional services of Unlimited Aliases and NoLImit Extra, which economically means that we have tens of percent more revenue than from the number of active webhosting sites mentioned above alone. More than 30 thousand domains are actively operated on paid web hosting.
we have sold over 4,000 of our modular VPS, which means a slightly higher number of active (and sold) VPS modules.
we have sold over 30 dedicated servers, and we are considering how to continue with this service and not develop it

We will report the exact numbers to our shareholders. Now take into account some rounding of tens of percent. However, if we state that we have “more than” some services, it means that we have exceeded this threshold and are moving above it (even by tens of percent).

What if we have no growth…

We’re not afraid of that either. At the moment we have so many customers that if the number of customers did not grow, we would be able to make a successful living. This is clear from the figures above. Then you can “cut” advertising costs, investment costs (there would be no need to buy new hardware) and drastically reduce labor costs (no need to do development) and it gets surprisingly nice numbers. We don’t have leases. We have no loans. We don’t have rentals. We will be left with wage costs at about half the number of employees, lower connectivity costs and about the same electricity costs. Once every 5-6 years we would have to replace the servers.

How much is the projected profit then? A really good estimate can be calculated that the monthly profit would be 550.000,-CZK per month, i.e. 6,600.000,-CZK per year. If the number of shares is 230,000, the profit would be CZK 28 per share.

We want to move on. We want to prove more.

We believe that if we want to be able to build something more valuable and stronger than our current company, we need to grow much more than we can currently imagine. For that we need development and we need to develop.

It would be a shame to throw away our opportunity to build a big and strong company. We want to build something big, so we are not satisfied with the above statement and will not stop our growth for a “few” hundred thousand monthly profit. We are moving forward and looking for people who want to join us. We’re not looking for someone looking for actual profit. We’re not looking for someone who has a different philosophy than us. We are looking for people who want to join us.

Yes, such plans mean investment. Such plans mean giving up the vision of current profit, but may bring more in the future. In addition, the further development of the company would lead to an appreciation of the entire company and thus of the individual shares.

What belongs to us… (what you become a shareholder of)

We don’t have luxury cars in our society, we don’t have useless things. Everything is done efficiently and everything is subordinated to future growth.

What the company owns, what we have built (and what the shareholders become part owners of):

prior to the subscription, it will become the owner of the WEDOS Datacenter (a 2 x 440m2 building in Hluboká nad Vltavou) with an estimated price for the building itself (excluding any equipment and technology) of more than CZK 11 million
ground floor of the building converted into a Datacentre (originally a fallout shelter, which is partially underground) – double flooring, fire extinguishing, air conditioning, wiring, electrical wiring at 20% capacity, motor generator at 20% capacity, UPS, CCTV system, attendance system, RFID card entry system, all at a cost and conversion price exceeding 10 million crowns
racks in the datacenter, all servers, blade servers, disk arrays, routers, switches, plus spare parts, all at a purchase price well in excess of 12 million crowns
fully equipped offices with furniture (for approx. 50 employees) and computer equipment, meeting room, training room, warehouse, all at a purchase price of more than 2 million
wedos internet domains
own programmed fully automated system for domain registrations, their management, administration of services, server management, server monitoring, complete administration and automation of services offered, all SW purchased by the company. The whole system has been (continuously) developed (by several staff) since January 2010 and builds on the application development since 2007 and builds on the experience since 1997. The salary costs alone exceed CZK 8 million, the real value is significantly (many times) higher.
a reliable “working team” of all company employees, which is priceless
the entire company is certified according to ISO 9001 and 14001 plus we are preparing ISO data security certification
many years of experience of all employees, exceptionally high quality and long experience of managers
customers, customer base, services provided. We don’t estimate the market price, but it’s one of the most valuable items
the good name of the company, the reputation of the company, which has an incredibly high value

What do we think of the above figures?

We saved the numbers for last. Rating also. We believe that the figures presented here make an investment in our company much more interesting and attractive than you have ever imagined.

We suppose that we have thus “repelled” the onslaught of “scroungers” who do not believe in our low prices and the chance of success and of making (and regularly generating) a profit.

What do we need for the future? Grow, grow, grow and grow again. The problem is not capital, but we need (and want) growth for appreciation.

We have everything automated, we have our own building, we have our own technology, we have know-how, we have experience and we know what we are doing. We are not dragging behind us a bad past and historical services, but instead we have a progressive and successful offer that has a great future.

Declaration of truthfulness and completeness of information

In conclusion, it is appropriate (or even necessary) to state that all the above information is complete and true and that we have not withheld anything from potential buyers.

In view of the public subscription of shares, we must not conceal or misrepresent the above-mentioned financial data, as this could constitute a criminal offence.

SMS & E-mail info

If you would like to be informed about the exact time when the order process will start, we also offer the option of sending us your phone number or email (or preferably both) and we will send a message that the process will start in so many hours. We estimate that we will send out a notification a few hours before the launch. If you would like a similar message, please contact us via the contact form. Please include a phone number for SMS, email and, if applicable, the expected number of shares to be purchased. We can also track the development of interest accordingly. We don’t know ourselves what will happen.