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Quote:Strong growth in revenue and profits

QXL ricardo plc (“QXL” or the “Group”, QXL.L) today announces results for the third quarter ended 31 December 2006. These results are the first to include the contribution of the acquired Eastern European businesses for a full quarter. Year-on-year comparisons for revenue and trading profit are given below for both actual and pro forma performance.

Q3 financial highlights
• Revenue increased to £12.4m
• Actual: Up 313% (Q3 05/06: £3.0m)
• Pro forma: Up 52% (Q3 05/06: £8.1m)
• Trading profit increased to £4.6m
• Actual: Up 1,569% (Q3 05/06: £278,000)
• Pro forma: Up 127% (Q3 05/06: £2.0m)
• Operating profit increased to £3.8m (Q3 05/06: actual loss of £151,000)
• Profit before tax increased to £3.9m (Q3 05/06: actual loss of £140,000)
• Basic and diluted earnings per share of 5.8p and 4.7p respectively (Q3 05/06: actual basic and diluted loss of 0.8p)
• Cash balance at 31 December 2006: £14.2m (31 December 2005: £2.6m)
Q3 operational highlights
• Gross merchandise volume (GMV) exceeded £200 million in the quarter (up 54% on a pro forma basis compared to Q3 05/06)
• Acquisition of Ceneo SA, Poland’s leading price comparison site

Commenting on the results, Bruce McInroy, Interim Chairman, said:
“This quarter we have delivered another very strong set of results. Year-on-year revenue increased 52% on a pro forma basis, slightly ahead of the 40-50% rate we forecast in our second quarter results, and trading profit increased 127%.

Current trading remains strong and we expect to see annualised pro forma revenue growth of around 50% in the current quarter, supported by major marketing campaigns in our core markets. The recent acquisition of Ceneo’s price comparison business in Poland complements our online trading platforms and we will continue to focus on expansion opportunities in Eastern Europe and enhancing our current business model.”

Quote:Operating review
These results reflect the first full quarter’s contribution of QXL Poland and the other Eastern European businesses, which have only been consolidated in the Group’s results since 10 August 2006. In order to present underlying trends more clearly, this operating review compares this quarter’s results to pro forma results as though the Group had also been consolidated for the whole of the quarter ended 31 December 2005.

Group revenue for the quarter ended 31 December 2006 was £12.4 million, a 52% increase compared to the same period last year. Gross merchandise volume, the value of goods traded through our sites, exceeded £200 million for the quarter, increasing by 54% on the same period the previous year.

Operating expenses (excluding non-trading expenses) in the quarter were £7.4 million, a 37% increase compared to the same period the previous year. As a result, trading profit for the quarter increased 127% to £4.6 million compared to £2.0 million for the quarter to 31 December 2005.

Our Eastern European businesses, primarily in Poland, delivered a very strong performance, with revenues of £9.0m for the quarter representing a 75% increase compared to the same period the previous year.

Excluding the impact of exchange rate movements, revenues would have increased by approximately 78%. Allegro.pl, our Polish online trading site, remains the most popular website in Poland with over three billion page views (source: Gemius). In addition, otoMoto.pl, our car-classified site, is now the leading car classified site and the eleventh most popular site overall in terms of page views in Poland. Both otoMoto.pl and otoDom.pl, our recently launched real estate classified site, continue to grow their listings strongly.

Online and offline advertising campaigns have been key components in the success of these sites and will continue throughout the coming year.

At the end of December we entered into agreements to acquire a 74.9% stake in Ceneo SA, Poland’s leading on-line price comparison website, for £875,000 with an option to acquire the remaining stake. The acquisition reflects our strategy of developing on-line businesses that complement our core trading platforms and we look forward to developing this area of online commerce in Poland and other countries.

Elsewhere in Eastern Europe, Aukro.cz, our online trading business in the Czech Republic, is showing strong growth and is now the leading auction site in terms of reach and page views (source: Alexa). Our Hungarian joint venture, in which we hold a 35% stake, and our operation in the Ukraine are both at earlier stages of development but are showing steady growth.

Our businesses in Western Europe, mainly in Switzerland, Denmark and Norway, delivered combined
revenues for the quarter of £3.4 million, a 13% increase compared to the quarter ended 31 December 2005. Excluding the impact of exchange rate movements, revenues would have increased by approximately 17%. These businesses experienced some impact on trading due to the consolidation of these sites onto a single upgraded platform at the end of the September quarter. However we were pleased to see stronger trading levels as the quarter progressed and the normal seasonal dip in trading in the second half of December was less pronounced than usual.

In the coming quarters, we expect to boost growth in our Western European operations through further investment in offline and online advertising campaigns in Switzerland, Denmark and Norway. While these campaigns will increase our marketing spend, we believe that they will enhance our brand awareness, competitive position and growth rates over 2007 as a whole.

As part of our strategy of focusing on those countries where we have, or believe we can achieve, marketleading positions, we closed our Italian and Swedish sites during the quarter and will close our French site this month. Trading activity on those sites was no longer material to the Group.

Management and Board changes
On 17 November 2006, Robert Dighero, Chief Financial Officer, was appointed Acting Chief Executive Officer.

We are in the final stages of our selection process for a new Chairman and expect to make an
announcement on this shortly. Once this process is complete, we will move forward in making further board appointments.


Capital restructuring
On 14 December 2006 shareholders approved a number of resolutions to simplify our capital structure, in particular a 20-for-1 split of the Company’s ordinary shares and a reduction of the Company’s share premium account. We expect the reduction in the share premium account to become effective on 2 February 2007.

Outlook
Current trading remains strong and we expect to see the growth momentum of the last quarter continue into 2007, helped by major marketing campaigns in our core markets. We expect annualised pro forma revenue growth of around 50% for the current quarter. The recent acquisition of Ceneo’s price comparison business in Poland complements our online trading platforms and we will continue to focus on expansion opportunities in Eastern Europe and enhancing our current business model.

Financial review
This financial review compares actual, not pro forma, results. Therefore it only includes the results of acquired companies from the date of their acquisition.

Revenue
For the quarter ended 31 December 2006, revenue increased by 313% to £12.4 million from £3.0 million for the same quarter in the previous year and increased 79% from £6.9 million in the quarter ended 30 September 2006. This increase in revenue was primarily due to the consolidation of the Eastern European businesses for the entire quarter and also to year-on-year increases in transaction volumes and gross merchandise value conducted through the Group’s websites.

Cost of sales and gross profit
Cost of sales remained negligible at 2% of revenue. Gross profit therefore increased broadly in line with revenue by 310% to £12.1 million in the last quarter from £2.9 million in the quarter ended 31 December 2005.

Operating expenses (excluding non-trading expenses as detailed below)
Sales and marketing expenses for the quarter increased 207% to £5.7 million from £1.9 million in the quarter ended 31 December 2005 and increased 50% from £3.8 million in the previous quarter. These increases were primarily due to the inclusion of sales and marketing expenditure in our Eastern European region for the full quarter. For the next few quarters we are planning significant branding campaigns across our major markets, which will increase sales and marketing expenses, but also we believe will have a positive impact on revenue growth.

Technology and development costs for the quarter increased 236% to £1.2 million from £352,000 for the quarter ended 31 December 2005 and increased 24% from £951,000 in the previous quarter. These increases resulted from the inclusion of the costs associated with the operation of our Eastern European businesses and continued investment in the Group’s systems. In the medium term we are planning to increase the resilience and sophistication of our technology systems, which we expect will result in an increase in technology costs as a percentage of revenue.

General and administrative costs for the quarter increased 15% year-on-year to £514,000 from £446,000 and decreased 60% from £321,000 in the previous quarter. In the future we expect general and administrative costs to increase, but to decrease slightly as a percentage of revenue.
Overall operating expenses therefore increased 179% to £7.4 million in the quarter from £2.7 million in the same quarter in the previous year primarily as a result of the integration of the Eastern European businesses.

Trading profit
As a result of the above, we recorded a trading profit of £4.6 million in the quarter ended 31 December 2006 compared to a trading profit of £278,000 in the quarter ended 31 December 2005.
Non-trading income and expenses International Financial Reporting Standards (”IFRS”) do not allow the recognition of items as “exceptional” in the principal financial statements, but the Group will, in addition to its IFRS obligations, continue to report “non-trading items” separately for the purpose of calculating a “trading profit” which it believes provides a better measure of performance of the Group’s underlying trading operations than does operating profit.

Other operating income
The Group reported no other operating income during the quarter ended 31 December 2006.
Share-based payments In the quarter ended 31 December 2006, the Group recorded a share-based payment charge, as required by IFRS2, of £166,000 compared to £126,000 in the quarter ended 31 December 2005.

Taxes on share options
The Group has accrued for expected future employer’s taxes incurred on the exercise of shares options by employees. During the quarter ended 31 December 2006, the Group expensed £85,000 related to taxes on share options. These charges relate primarily to movements in QXL’s share price and not to the Group’s trading.

Amortisation of intangible assets
The Group has recognised goodwill in its consolidated balance sheet (principally as a result of the
acquisition of the Eastern European businesses) and according to IAS 38 has separately identified and valued intangible assets. The goodwill will be subject to an annual impairment review, but the intangible assets are depreciated over an estimated useful economic life. As a result, the Group recorded a charge of £476,000 in the quarter ended 31 December 2006.

Restructuring charge
The Group has recorded a one-time charge of £125,000 relating to the closure of various minor
businesses.

Operating profit
As a result, operating profit in the quarter ended 31 December 2006 was £3.8 million compared to a loss of £151,000 in the quarter ended 31 December 2005.

Interest
Net interest receivable of £82,000, primarily interest on bank deposits, was recorded in the quarter ended 31 December 2006 compared to £11,000 in the quarter ended 31 December 2005.

Tax
During the quarter ended 31 December 2006 the Group recorded a tax charge of £1.5 million primarily related to tax on profits in Poland. The tax charge in the quarter was approximately £500,000 more than would be expected normally due to restructuring of assets and entities acquired as part of the Eastern European businesses. There may be some further one-time tax charges over the next few quarters as this restructuring is completed but in general we expect the underlying rate to reduce in the next few quarters.

In the quarter ended 31 December 2005, the Group recorded a tax charge of £65,000 relating to the release of a deferred tax asset.

Minority interest
A charge for minority interest of £8,000 was incurred during the quarter ended 31 December 2006,
compared to £59,000 in the quarter ended 31 December 2005.

Profit attributable to equity shareholders
Profit attributable to equity shareholders for the quarter ended 31 December 2006 was £2.4 million
compared to a loss of £264,000 in the quarter ended 31 December 2005.

Profit per ordinary share
Following the 20-for-1 share split, which took effect on 18 December 2006, profit per ordinary share has been restated for comparative periods. Profit per ordinary share has been calculated in accordance with IAS 33. The Group’s basic and diluted profit per ordinary share for the quarter ended 31 December 2006 were 5.8p and 4.7p respectively, compared to a basic and diluted loss of 0.8p per ordinary share respectively for the quarter ended 31 December 2005.

Cash flow and balance sheet
The Group’s cash position improved by £2.5 million during the quarter ended 31 December 2006 despite the payment of approximately £1.3 million, which represented the majority of outstanding amounts relating to the settlement and reintegration of the Eastern European businesses and cash outflows relating to the acquisition of Ceneo SA of approximately £900,000. £591,000 was raised through the issue of shares following the exercise by staff of share options.

Financing and treasury
The Group’s cash position at 31 December 2006 was £14.2 million compared to £2.6 million a year earlier.

In general the bulk of the Group’s cash balances will be held in Sterling, Euro, Swiss Franc and Polish Zloty denominated floating rate deposits. However, currently, the bulk of the Group’s cash deposits are held in Polish Zloty. This position is likely to remain in the short-term until certain tax related restructuring has been completed and for that period the Group will have an increased exposure to exchange movements in Polish Zloty relative to Sterling.