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Tuesday, 26 September, 2000, 11:41 GMT 12:41 UK
UK dot.coms 'lag behind'
Browsing the internet
Only 26% of UK dot.coms are in profit
Germany is leading the growth of e-commerce in Europe's, says a report which shows renewed vigour among companies.

Internet companies are waking up to the fact that the honeymoon is over

Kevin Ellis, partner, PWC

Germany is home to more than one third of Europe's top internet companies, with the UK, where 35 of the largest 150 firms are based, in second place.

New economy firms based in Germany are also more financially secure, with a half running at a profit compared to a quarter in the UK, says the survey, led by PricewaterhouseCoopers.

But UK dot.coms have developed their business skills, and improved their prospects, since a series of high profile collapses hit the sector in the spring, the report says.

In May, European online clothing retailer collapsed through lack of funds, just six months after it launched.

Wake up call

"Internet companies are waking up to the fact that the honeymoon is over," Kevin Ellis, partner at consultants PricewaterhouseCoopers, said on Tuesday.

Net points - Europe's e-leaders
Germany: 44.8%
UK: 16.1%
Netherlands: 14.4%
France: 7.3%
Spain: 6.6%
Sweden: 4.0%

% of top firms, by market cap

"What we're witnessing is dot.coms throughout Europe beginning to take proactive steps to... regain the confidence of the market."

Measures such as business restructuring or merger have helped almost all UK dot.coms surveyed in the last report to reduce their need for new finance.

Europe-wide, companies will be able to survive an average of 20 months without extra investment, compared to 13 months when firms were surveyed in December, the report says.

Seizing control

"The improving rates indicate that management teams are focusing not only on cash management but on bringing forward their break-even points to take control of their destinies," Mr Ellis said.

Advantage Germany

Germany has:

56 of the top 150 European internet companies
45% of Europe's sector, by market capitalisation
raised 5.3bn euro for investment since January

Nonetheless companies representing more than 10% of listed European dot.coms, and with a combined market capitalisation of 36bn euros, are at risk of running out of cash within a year, the report says.

Firms operating business-to-consumer (B2C) operations are under greatest threat thanks largely to their greater advertising costs, says PWC, which surveyed 150 listed internet companies across Europe.

This difference has been reflected in the share prices of listed dot.coms, with B2C stock declining by 14% since the beginning of the year and shares in business-to-business firms rising by an average of 25%.

Best performer

Software and infrastructure firms, where share prices have risen 60% since the beginning of 2000, have performed best among dot.coms.

But Toby Jennings, director at internet specialists Fletcher Advisory, which helped compile the survey, said the market valuation of internet firms is still confused.

"Share prices still bear little relationship to traditional business fundamentals such as sales [or] profit margins," he said. "The growth expectations of the market remains substantial."

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