Operating and financial review

Introduction

As the Chairman has indicated in his statement, the business of the

group is divided into two principal areas.  The first, typically targeted at

medium to large corporations, entails the provision of outsourced domain

name management services in order to facilitate on line brand and

intellectual property protection.  The second is the provision of web 

hosting and related services to small and medium sized enterprises

(SMEs) in order to provide a robust and feature rich outsourced service

that most SMEs could not afford to run in isolation.

Market conditions

Following quarter on quarter declines throughout 2000, the mass market

for domain name registration in the UK appears to have stabilised at

around the monthly level recorded in December 2000.  However, the

interest in higher value domain management services remains strong.

The boom in name registrations during the first quarter of 2000 has

apparently left many medium to large corporations with a domain name

"headache" requiring an outsourced management solution.  This has been

recently emphasised by extensive commercial interest in the build up to,

and post year end introduction, of the new domain extensions, .biz and

.info.  Our research showed that 80% of the world's top brands

successfully registered their .info domain name during the initial `Sunrise'

period which ran from 25 July 2001 to 27 August 2001.

In the web hosting sector, aggressive data centre build out, both by

longer established businesses as well as more recently established pure 

play entrants, has seen the data centre market move from under supply

in the first half of 2000 to over capacity in the first half of 2001.  In

contrast, the NetBenefit group chose to concentrate on value added

service provision and has not invested in physical data centre

infrastructure, preferring to rent data centre space from the specialist

providers.  Indications are that the market for value added hosting and

related services supplied to SME's remains buoyant, especially from

hosting providers able to combine good service with reasonable prices.

In addition, this area of web hosting is not suffering from the over 

investment and capacity that has recently characterised the data hotel

sub sector of web hosting.

Financial

The result for the year shows turnover to June 2001 of  6.4m with an

performance

operating loss before goodwill amortisation of  3.8m.  The second half of

the year shows an improved position, with a loss of  1.2m compared to

 2.6m in the first half.  This improving trend continued into the final

quarter.

Domain name

Domain Name Management Services are marketed under the NetNames'

management

brand.  These services range from initial consultation and analysis of a

services

client's existing name portfolio through registration to ongoing renewal

and  maintenance of a well focused portfolio.

5

5