13th Feb 2006 10:53
Electric Word PLC13 February 2006 13 February 2006 Correction - This press release replaces the earlier release under RNS number2918Y that was announced this morning at 07.00. The amendment refers toacquisition of SportBusiness Group for the initial consideration of £2.74m.This figure should be £2.5m. ELECTRIC WORD PLC PRELIMINARY RESULTSFOR THE YEAR ENDED 30 NOVEMBER 2005 Strong Improvement In Profits and Margins • Profit before tax and goodwill improves to £451k (£107k) • Margin before tax and goodwill improves from 2% to 7% • Turnover increases 13% to £6.2m (£5.5m) • 69% of Group revenue from renewable subscriptions • Strong balance sheet maintained • Acquisitions of Fieldwork Online Training in June and Teaching Expertise magazine in December 2005 continue to build education portfolio • Acquisition of SportBusiness Group in December 2005 significantly strengthens sports publishing division and expands customer base and products • Current year started well, with trading in line with Board's expectations Julian Turner, Chief Executive commented: "We have continued to make good progress this year, particularly in improvingour margins as reflected in the significant improvement in profitability. Wehave remained focused on our Public Sector Management and Sports publishing -areas where there are good market opportunities - and broadened our productportfolio, both organically and through acquisitions. "The current year has begun well and in line with our expectations. We have alarger portfolio and a broader customer base to develop our publications,subscriptions, databases, e-marketing and advertising." ENDS Enquiries: Julian Turner, Chief ExecutiveElectric Word 0207 954 3470 Tim Spratt / Kim MuckleFinancial Dynamics 0207 831 3113 Extracts from Chairman's and Chief Executive's Reports INTRODUCTION Following 2004's move into profitability, the aim in 2005 was to buildprofitability and scale as we sought opportunities to capitalise on the Group'sinfrastructure. I am pleased to report that both those aims have beenaccomplished, with profits before tax and goodwill increased fourfold to£451,000. After building profits, the second key objective in 2005 was to develop thescale of the business through acquisition. Electric Word has an exceptionallyexperienced management team, at both Board level and below, for a company of itssize. Over the six years of its existence the Group has gradually extended itsrange of publishing competencies, backed in each case by robust middlemanagement and a scalable information management infrastructure. The Group nowhas a wide range of information formats and publishing expertise to add value toacquired businesses, with particular strengths in subscriptions marketing,ROI-based resource management and online sales channel management. RESULTS Turnover in the year grew by 13% to £6.2m, driven both by additions to ourproduct range and growing international sales, particularly online. Our strategyhas been to build our database of customers and create a range of specialistinformation products to meet their needs. The strength and quality of thebusiness is illustrated by the fact that in 2005 69% of our revenue came fromrenewable subscriptions. It was also encouraging that such a high proportion (45%) of our revenue growthwas turned into profit, reflected in a clear improvement in pre-tax marginsbefore goodwill from 2% to 7%. Over 80% of our profit improvement was fromorganic growth, with the Fieldwork Online Training acquisition also contributingto gross profits from July. Financial summary 2005 2004Turnover 6,234 5,516 13%Gross profit 2,623 1,913 37%Operating Profit before goodwill 432 100 332%Profit before tax and goodwill 451 107 322%Profit after tax 114 240* -53%Operating cash flow 290 329 -12%Cash balance 881 901 -2% *2004 result after recognizing a deferred tax asset of £400k The Group continued its record of good cash generation from operating activitiesand after investing £270k in acquisitions finished the year once again with astrong net cash position. Following the capital reduction agreed at last year'sAGM, the balance sheet now reflects the ongoing strength of the business andgives us for the first time a distributable reserve. In the first instance thishas been deployed to start a Share Incentive Plan which will broaden shareownership among all Electric Word employees; this will be continued in 2006.While there are no plans this year to pay a dividend, creating the reserve isthe first step to what we hope will be a future progressive dividend policy. OPERATIONAL PERFORMANCE Public Sector Management division 2005 2004Turnover 4,955 4,481 11%Operating profit before goodwill 724 435 66%Operating margin 14.6% 9.7% 50% The Public Sector Management division supports the professional development ofmanagers working in schools, the health sector and local authorities. Itprovides subscription newsletters, loose-leaf files, books, special reports,online training, conferences and now a magazine. The division's largest market is education management, which has grown rapidlysince the Group's acquisition of Optimus Publishing in 2000. Driven by acontinuous process of government reform of the education system, middle andsenior managers in schools have acquired a wide range of non-teachingresponsibilities. This has required them to develop new skills and maintaintheir awareness of a constantly-evolving compliance environment. Our productsenable them to keep in touch with the information they need as well as thelessons of their colleagues' experience in facing similar challenges in otherschools. Profits advanced significantly in this division in 2005, with profits up 66%,and margins increased from 10% to 15%. Profit growth was driven by theincreasing maturity of the subscription products (average marketing costs tendto reduce as repeat business increases) and a broader range of formats tocross-sell to existing subscribers. Book and one-off publishing revenuesincreased by 32% in the year and the new online learning products also added ahigher margin business to the portfolio. One disappointment was the poorfirst-half performance of the conferences business which was more affected bythe general election than had been anticipated. Nevertheless, performance pickedup in the second half and both revenues and profits advanced on the previousyear. The division now has an inter-connected group of products with particularstrengths in the fields of the administration and delivery of professionaldevelopment, special educational needs, emotional development, child protectionand school leadership and management. These areas continue to figure prominentlyin the Government's agenda for public sector reform and we can expect futureinitiatives to reinforce the value of Electric Word's databases of customers andcontacts. The future strategy for the division is geared towards making the most of itscustomer database assets by continuing to improve margins and grow revenue.Further revenue streams can be added, including those that exploit theattraction of our customers to third-party businesses through advertising ortransaction revenues. New and existing revenue streams will be supportedadditionally by fast-growing sales channels such as e-marketing and telephonesales. The access to market that our brands and databases bring provide a strongrationale for further acquisitions in the education, health and local authoritysectors. Sport Publishing division 2005 2004Turnover 1,279 1,035 24%Operating profit before goodwill 107 16 569%Operating margin 8.4% 1.5% 460% The sport publishing division provides practical, research-based information forcompeting athletes and professional development for sports professionals such ascoaches, trainers and physiotherapists. These take the form of paper and onlinenewsletters such as Peak Performance and Sports Injury Bulletin, a verywell-visited website and a growing range of workbooks and special reports suchas Body Fuel, All-Weather Training, Master Athletes, Training for Rugby' and 101Evaluation Tests. Revenues in the year increased 24% to £1.3m. Originally a UK-only business, thelast two years have seen strong growth from international sales driven by theinternet as a marketing channel and by the particular strength of the Australianmarket. In 2005, international sales grew by 84% and by the end of the yearaccounted for 45% of turnover in this division. The division also accelerated the profit improvement of the previous year, withmargins growing from 1.5% to 8.4%. The profit growth was the result ofbroadening the product range by adding more one-off publications to cross-sellinto the database (book revenues tripled in the year) and the investment inon-and off-line marketing channels that saw the sports science database grow toover 250,000 contacts. High-margin online advertising revenues also started tocontribute for the first time also and can be expected to continue to grow. Sport is a high-growth market, covering personal fitness, competitiveimprovement, professional development at all levels and the commercialmanagement of sports rights assets. We see long-term UK and international growthin each of these sports areas, and with the acquisition of SportBusiness Group(SBG), Electric Word is now in a position to take advantage of both the personaland business aspects of a thriving market. The SBG acquisition was completed on 31 December 2005 for an initialconsideration of £2.5m and a deferred element of up to a further £250k. SBG isthe leading publisher serving the community of international sports rightsowners, media owners and sponsoring brands. It publishes SportBusinessInternational magazine, i-Gaming Business magazine, the analytical newsletterTV Sports Markets and a series of high-value industry reports such as TheBusiness of Sports Marketing, Maximising the Value of Hospitality and Broadband:The Opportunities for Sport. The acquisition creates value for the Group through the exchange of competenciesbetween the companies and is expected to be immediately earnings enhancing. SBG products will benefit from Electric Word's strengths in subscriptions,e-marketing and conference management. At the same time SBG's strength inadvertising sales creates a new competency for Electric Word. The financial structure of the acquisition is also attractive to Electric Wordshareholders. SBG was acquired for a combination of shares at 8p and preferenceshares converting at 10p. In addition, Electric Word has the option to redeem upto £625k of the preference shares on payment of a 2% interest coupon. Finally,as a result of the acquisition Stewart Newton, founder of Newton InvestmentManagement, holds 18.75m shares in Electric Word plc, making him the Company'slargest shareholder and an important and enthusiastic strategic investor for thefuture. CENTRAL GROUP COSTS Central Group costs not recharged to profit centres amounted to £399k in 2005(£315k in 2004). In addition there was a net interest credit in the year of£19k (£7k in 2004). OUTLOOK 2006 has started well. Current trading is in line the Board's expectations inall areas of the business. The acquisitions made in both divisions over the past year have strengthenedElectric Word's position to continue to build additional revenues streams from asolid platform of products. SBG is a good example of how the Group can benefit from complementary strengthsin an adjoining market, and will also help Electric Word to create more valuefrom its Group cost base. The business of sport is a high growth market and theaddition of SBG's titles to our own portfolio of sports information productscreates an excellent platform for growth, particularly in the run up to the 2012London Olympics when we expect to benefit from the increasing interest in sportand its commercial development. We will continue to look for value-enhancing acquisitions in 2006 and see manyopportunities to balance acquired and organic growth into the future. TheGroup's growth strategy for 2006 continues to retain focus on developing bothdivisions, building on the Group's existing platform through earnings-enhancingacquisitions, building product development and expanding our customer base. Electric Word plcCONSOLIDATED PROFIT AND LOSS ACCOUNTfor the year ended 30 November 2005 Notes 2005 2005 2004 2004 £ £ £ £ TURNOVER (including acquisitions£151,621) 2 6,234,499 5,516,307 COST OF SALESMarketing costs (1,727,251) (1,736,994)Other cost of sales (1,884,240) (1,866,148) GROSS PROFIT (includingacquisitions £119,176) 2,623,008 1,913,165 Operating expenses (2,190,768) (1,813,037)Amortisation of goodwill (286,498) (266,164) Total administrative expenses (2,477,266) (2,079,201) OPERATING PROFIT/(LOSS)(including acquisitions £16,188) 145,742 (166,036) Interest receivable 21,020 6,763Interest payable (1,914) - PROFIT/(LOSS) ON ORDINARY 164,848 (159,273)ACTIVITIES BEFORE TAXATION Taxation 3 (50,756) 399,580 PROFIT ON ORDINARY ACTIVITIES 114,092 240,307AFTER TAXATION EARNINGS PER SHAREBasic 4 0.12p 0.25p Diluted 4 0.10p 0.21p The operating profit for the year arises from the group's continuing operations. No separate statement of Total Recognised Gains and Losses has been presented asall such gains and losses have been dealt with in the profit and loss account. Electric Word plcCONSOLIDATED BALANCE SHEET30 November 2005 Group Group 2005 2004 £ £FIXED ASSETSIntangible assets 2,037,287 1,895,975Tangible assets 181,466 29,814 2,218,753 1,925,789 CURRENT ASSETSStocks 53,117 104,956Debtors due within one year 1,530,399 860,813Debtors due after more than one year 292,651 501,762Cash at bank and in hand 880,677 901,425 2,756,844 2,368,956 CREDITORS: Amounts falling due within one yearDeferred revenue (2,708,560) (2,494,992)Other creditors (912,780) (802,781) (3,621,340) (3,297,773) NET CURRENT LIABILITIES (864,496) (928,817) TOTAL ASSETS LESS CURRENT LIABILITIES 1,354,257 996,972 CREDITORS: Amounts falling due after more than one year (105,402) - PROVISIONS FOR LIABILITIES AND CHARGES (158,000) - NET ASSETS 1,090,855 996,972 CAPITAL AND RESERVESCalled up share capital 951,139 950,139Share premium account 3,000 2,118,805Merger reserve 105,011 105,011ESOP reserve (24,209) -Profit and loss account 55,914 (2,176,983) SHAREHOLDERS' FUNDS 1,090,855 996,972 Electric Word plcCOMPANY BALANCE SHEET30 November 2005 Company Company 2005 2004 £ £FIXED ASSETSIntangible assets 2,037,287 1,895,975Tangible assets 181,466 29,814Investments 35,066 35,066 2,253,819 1,960,855 CURRENT ASSETSStocks 53,117 104,956Debtors due within one year 1,530,399 860,813Debtors due after more than one year 292,651 501,762Cash at bank and in hand 880,677 901,425 2,756,844 2,368,956 CREDITORS: Amounts falling due within one yearDeferred revenue (2,708,560) (2,494,992)Other creditors (941,117) (831,118) (3,649,677) (3,326,110) NET CURRENT LIABILITIES (892,833) (957,154) TOTAL ASSETS LESS CURRENT LIABILITIES 1,360,986 1,003,701 CREDITORS: Amounts falling due after more than oneyear (105,402) - PROVISIONS FOR LIABILITIES AND CHARGES (158,000) - NET ASSETS 1,097,584 1,003,701 CAPITAL AND RESERVESCalled up share capital 951,139 950,139Share premium account 3,000 2,118,805ESOP reserve (24,209) -Profit and loss account 167,654 (2,065,243) SHAREHOLDERS' FUNDS 1,097,584 1,003,701 Electric Word plcCONSOLIDATED CASH FLOW STATEMENTfor the year ended 30 November 2005 Notes 2005 2004 £ £ Cash flow from operating activities 5a 289,517 329,470 Returns on investments and servicing of finance 5b 19,106 6,595 Taxation (420) - Capital expenditure and financial investment 5b (30,873) (15,553) Cash inflow before acquisitions and financing 277,330 320,512 Acquisitions 5b (269,806) - Cash inflow before financing 7,524 320,512 Financing 5b (28,272) (17,000) (DECREASE)/INCREASE IN CASH IN THE YEAR (20,748) 303,512 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2005 2004 £ £ (Decrease)/increase in cash in the year (20,748) 303,512Cash outflow from decrease in lease financing 6,945 -Cash to repurchase loan stock - 40,000 Change in net debt resulting from cash flows (13,803) 343,512New finance leases (153,000) - MOVEMENT IN NET FUNDS IN YEAR (166,803) 343,512 NET FUNDS AT 1 DECEMBER 2004 901,425 557,913 NET FUNDS AT 30 NOVEMBER 2005 734,622 901,425 Electric Word plcNOTES TO THE PRELIMINARY ANNOUNCEMENTfor the year ended 30 November 2005 1 This announcement was approved by the Directors on the10th February 2006. The preliminary results for the year ended 30th November2005 are unaudited. The financial information set out in the announcement doesnot constitute the Company's statutory accounts for the years ended 30thNovember 2005 or 30th November 2004. The financial information for the yearended 30th November 2004 is derived from the statutory accounts for that year,which have been delivered to the Registrar of Companies. The auditors reportedon those accounts and their report was unqualified. 2 TURNOVER The group's turnover and profit/(loss) on ordinary activities before taxationwere all derived from its principal activity. Sales were made in the followinggeographical markets: 2005 2004 £ £ United Kingdom 5,573,094 5,207,017 Other 661,405 309,290 6,234,499 5,516,307 Profit/(loss) on ordinary Turnover activities before Net assets taxation Analysis 2005 2004 2005 2004 2005 2004 by class of £ £ £ £ £ £ business Public sector management 4,954,962 4,481,376 442,190 173,613 1,451,542 1,145,519 Sport 1,279,537 1,034,931 102,432 10,846 (125,253) (214,560) Group overheads - - (379,774) (343,732) (235,434) 66,013 6,234,499 5,516,307 164,848 (159,273) 1,090,855 996,972 3 TAXATION 2005 2004 £ £ Current tax: UK corporation tax on profits of the period 2,617 420 Total current tax 2,617 420 Deferred taxation: Origination and reversal of timing differences 48,139 (400,000) Total deferred tax 48,139 (400,000) Tax on loss on ordinary activities 50,756 (399,580) Factors affecting tax charge for the period: The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The differences are explained below: Profit/(loss) on ordinary activities before tax 164,848 (159,273) Profit/(loss) on ordinary activities multiplied by the standard rate of 49,454 (47,782) corporation tax in the UK of 30% (2004: 30%) Effects of: Expenses not deductible for tax purposes 14,279 4,066 Amortisation of intangible fixed asset 79,531 79,849 Capital allowances in excess of deprecation 5,767 4,333 (Utilisation of)/unutilised tax losses (142,725) (38,436) Small companies relief (3,689) (1,610) Current tax charge for the period 2,617 420 There are accumulated losses of £1.78 million (2004: £2.22 million) which,subject to agreement with the Inland Revenue, are available to offset futureprofits of the same trade. A deferred tax asset of £546,623 (2004: £594,762) has been recognised on thebalance sheet representing losses which are expected to reverse in theforeseeable future. 4 EARNINGS PER ORDINARY SHARE The calculation of earnings per ordinary share is based on the following. 2005 2004 Weighted Weighted average Earnings average Earnings Earnings number per share Earnings number per share £ of shares p £ of shares p Basic earnings per 114,092 95,055,772 0.12p 240,307 94,913,854 0.25p share Diluted earnings per share Basic earnings per 114,092 95,055,772 0.12p 240,307 94,913,854 0.25p share Dilutive effect of - 11,435,522 (0.01)p - 9,885,481 (0.02)p share options Dilutive effect of - 9,755,302 (0.01)p - 9,720,680 (0.02)p warrants Dilutive effect of share incentive plan - - - - - - 114,092 116,246,596 0.10p 240,307 114,520,015 0.21p CASH FLOWS 2005 20045 £ £a Reconciliation of operating loss to net cash inflow from operating activities Operating profit/(loss) 145,742 (166,036) Amortisation 286,494 266,164 Depreciation 32,221 34,575 (Increase)/decrease in stocks 51,839 (9,299) Increase in debtors (508,614) (178,544) Increase in creditors 122,717 382,610 Increase in provision 158,000 - Adjustment re ESOP 1,118 - Net cash inflow from operating activities 289,517 329,470 b Analysis of cash flows for headings netted in the cash flow 2005 2004 statement £ £ Returns on investments and servicing of finance Interest received 21,020 6,595 Interest element of finance lease rental payments (1,914) - Net cash inflow from returns on investments and servicing of 19,106 6,595 finance Capital expenditure and financial investment Purchase of tangible fixed assets (30,873) (23,413) Disposal of intangible fixed assets - 7,860 Net cash outflow from capital expenditure and financial investment (30,873) (15,553) Acquisitions Purchase of trade and business (269,806) - Net cash outflow from acquisitions (269,806) - 2005 2004 £ £ Financing Issue of share capital 4,000 23,000 Repayment of loan stock - (40,000) Capital element of finance lease rental payments (6,945) - Contribution of ESOP (25,327) - Net cash inflow from financing (28,272) (17,000) c Analysis of funds At Other At 30 1 December non cash November 2004 Cash flow changes 2005 £ £ £ £ Cash at bank and in hand 901,425 (20,748) - 880,677 Finance leases - 6,945 (153,000) (146,055) 901,425 (13,803) (153,000) 734,622 6 Copies of this announcement are available from the Company's registered office: 33-41 Dallington Street, London EC1V 0BB This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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