22nd Feb 2005 07:01
Electric Word PLC22 February 2005 22 February 2005 ELECTRIC WORD PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2004 First-time profits for specialist information publisher reflect successful organic and acquisitive growth • Profit before tax and goodwill of £107k compared to loss of £418k • Both Public Sector Management and Sport and Specialist Consumer divisions profitable • Turnover increases 81% to £5.5m • Public Sector Management division doubles turnover, reflecting strong growth in education market • 72% of Group revenues from renewable subscriptions • Strong balance sheet with 51% rise in net cash to £901k • Good opportunities for further organic and acquisitive growth in niche newsletter market • Current year started well with trading in line with Board's expectations Julian Turner, Chief Executive, commented: "This is an inflection point for the Group. Our move into profit for the firsttime reflects the benefits we are deriving from the education sector wheregovernment initiatives are making new demands; the strength and defensivequalities of our subscriptions model; and the benefits our acquisitions derivefrom being part of a larger publisher. "The new year has begun well and current trading is in line with the Board'sexpectations. With a strong balance sheet and good cash flow we will continueto invest in both organic and acquisitive expansion in our valuable nicheswithin the publishing sector." ENDS Enquiries:Julian Turner, Chief ExecutiveElectric Word 020 7954 3470 Tim Spratt / Kim MuckleFinancial Dynamics 020 7831 3113 Extracts from Chairman's and Chief Executive's Reports INTRODUCTION Electric Word plc is a specialist information company, made up of two divisions:Public Sector Management and Sport and Specialist Consumer. Electric Wordemploys many formats, including newsletters in both paper and electronic mediaand conferences, books and special reports. It has a particular strength inrenewable subscription products, which accounted for 72% of turnover last year. 2004 was a landmark year for Electric Word. A year ago we set ourselves the aimof breaking even for the first time. I am now delighted to report that we haveachieved and exceeded that aim by posting a profit before tax and goodwill of£107,000. RESULTS The Company has always had an excellent record of revenue growth and 2004turnover increased by 81% to £5.5million, taking the company's compound annualrate of turnover growth to 71% over four years. The quality of that revenue isunderlined by the fact that 72% is from renewable subscriptions. Profit before tax and goodwill improved by £525k, from a loss of £418k in 2003to a profit of £107k in 2004. The bulk of this improvement (64%) was due toorganic growth and 36% to the acquisition of PfP Publishing Ltd at the end ofNovember 2003. £000's 2004 2003Turnover 5,516 3,050 81%Gross profit 1,913 985 94%Profit before tax and goodwill 107 (418)Profit after tax 240 (407) Underlying this result was revenue growth in both of the Company's key markets,Public Sector Management Information (up 104%) and Sport & Specialist Consumer(up 21%). Both divisions generated profits for the first time. Profit analysis £000's 2004 2003Public Sector Management 435 (2)Sport and Specialist Consumer 16 (23)Group overhead (351) (398)Operating Profit before goodwill 100 (423)Interest 7 5Profit before tax and goodwill 107 (418)Goodwill (266) (140)Tax 400 150Profit after tax 240 (407) 300% of operating profit was turned into cash as the Company continued itsthree-year record of generating positive cash flow by posting an operating cashsurplus of £321k. This boosted net cash balances to £901k which represents justunder a penny per share and puts the Group in a strong position to grow further. Operational Performance Public Sector Management division £000's 2004 2003Turnover 4,481 2,192 104%Profit before tax and goodwill 435 (2) The Public Sector Management division, which in 2004 represented 81% of groupturnover, improved profit before tax and goodwill by £437k. The divisionemploys many different publishing formats to support the information needs ofprofessionals working in education management, health and local authorityfunding. It includes 18 newsletters, 9 loose-leaf files and a growing list ofone-off publications and conferences. The division's largest market is education management, which has developed fromthe April 2000 acquisition of Optimus Publishing, which had four newslettertitles and a turnover of £65,000. The education business in 2004 had a turnoverof £3.9m. This growth has been assisted by the combination of the steadydevolution of education management from local authorities to schools over thelast 10 years and the creation of a range of new responsibilities for middle andsenior managers. The requirements and opportunities of self-management haveobliged teachers to develop new skills as well as awareness of an increasinglycomplex compliance environment. The resultant information needs arewell-established in education but also have parallels in the management ofprimary healthcare, which is still a very new market for the Company, and inlocal authorities for which the division publishes two newsletters for fundingprofessionals as well as several conferences. The division's profit improvement is due to three underlying developments. Themost significant change has been the acquisition of PfP publishing on 30November 2003, which added nine more established products to a portfolio thatincluded a large number of recent launches. PfP's performance has beensignificantly improved since joining the Group. A number of low-value productswith poor profit margins were removed and investment increased in the coresubscription products turning a loss of £160k in the last full year beforeacquisition into a substantial contribution to the division's profits in 2004. Our existing Optimus newsletter business achieved a significant improvement inprofitability reflecting an extra year's maturity of the established productsand the rapid growth in 2004 of newsletter titles launched in 2003. Three titlesperformed particularly well, Child Protection Update, Gifted & Talented Updateand Emotional Literacy Update. Thirdly, the division made good progress in building additional revenue streamsto complement the established and growing foundation of renewable subscriptions. • The conferences business doubled its number of events from 23 to 45, including a new series of smaller seminar-style events on legal themes. Conference revenues increased to £1.1m from £683k in 2003. • The one-off publications business had some valuable successes in the year and increased revenue to £446k from £53k in 2003. These developments are an important part of the Group's strategy of increasingcross-sales and total revenue per subscriber, which in this division improvedfrom £127 to £135 despite the arrival of the PfP products, which were generallymore lowly priced. In addition to these improvements in underlying profitability the divisionbenefited from: the timing of the integration of PfP's titles into thedivision's publishing schedule, which meant that one title published an extraissue in the year; and repackaging and repricing which enabled some inheritedPfP stock items and content to be sold at a greater value than anticipated. Future prospects for the division look encouraging. Demand for educationmanagement information in these formats has continued in the current academicyear. New government initiatives put teachers' continuing professionaldevelopment at the heart of the next phase of education strategy, and theincreasing integration of children's services across government departments,which has already seen primary responsibility for child protection move toschools, promises further opportunities to support teams working in and acrossdifferent agencies. Sports and Specialist Consumer division £000's 2004 2003Turnover 1,035 857 21%Profit before tax and goodwill 16 (23) The Sport and Specialist Consumer division presents sports science research in apractical form for coaches, sports injury therapists, competitive athletes andfitness enthusiasts. Unlike the public sector management information division,the division's products are generally personal purchases, as many of itscustomers are either self-employed sports professionals or consumers who areserious about their particular sporting or fitness interests. The division includes two newsletters available in paper and electronic formats,the long-established Peak Performance and Sports Injury Bulletin, and onerelatively recent online-only title, Successful Coaching. E-mail and theinternet are becoming increasingly important channels for marketing and productdelivery. 2004 was characterized by progress in three areas. Firstly, the online businessbuilt on its previous investment in learning and systems to establish somescale. Revenues doubled in the year to £264k, and losses were greatly reducedwhile still increasing the investment in marketing in order to create a valuableand willing database of e-mail prospects. These prospects were converted eitherto subscriptions (with negligible marginal costs but lower retention) or one-offsales. The result is an operation that is becoming one of the sector leaders indeveloping an online consumer business that is not reliant on advertisingrevenue. Secondly, and partly as a result of the online successes, the division was ableto find new international markets for its products, particularly in Australiawhere the company has a fledgling operation. International sales increased by78% to reach 13% of the division's total. Thirdly, the creation of an online channel, and the access to market that itprovides, has created an opportunity to create a series of one-off productsusing a combination of new and archive content. 2004 titles included CoachingYoung Athletes and Female Athletes. These along with the online marketing of theexisting back catalogue helped push average turnover per subscriber up 15% to£72. Prospects for the Sport and Specialist Consumer division are exciting. In theshort term, each of the three areas of progress in 2004 is set to continue anddevelop in 2005. Already six new one-off titles have been launched in the firstquarter (Marathon Training, Shoulder Injuries, Nutritional Supplements, MasterAthletes, Sports Psychology and the World Sports Science Performance Workbook),with more to follow. The sport and fitness market continues to grow, and withinit an increasing awareness of the value and profile of sports science. In the longer-term, there is a substantial opportunity to develop furtherspecialist consumer newsletter titles in the UK which, apart from retailinvestor newsletters, is well behind the USA in its use of this medium -especially if the increasing pressures on retail shelf-space make specialistconsumer magazine publishing more difficult. Finances Central Group costs amounted to £351k in 2004 (£398k in 2003). There was aninterest credit in the year of £7k (£5k in 2003). The Group has built up a substantial deferred tax asset, of which £195k has beenrecognised previously. This year the visibility of profits over the next threeyears is such that the Board has recognised a further £400k in 2004. As the Group moves into profit, it becomes appropriate to consider all strategicoptions for deploying future cash resources. At the moment the Company has aretained loss of £2,065,243. So long as there is a deficit on the profit andloss account, the Company is prevented from paying dividends or buying backshares. Accordingly, the Company is proposing to eliminate this cumulativedeficit by reducing its share premium account by £2,118,805. One option that this will open is the establishment of a Share Incentive Planwith an Employee Benefit Trust to purchase the shares to fulfil it. This fitswith our strategy of incentivising employees and spreading share ownershipwithin the company while reducing where appropriate the dilutive effect ofissuing new shares. Outlook 2005 has started well. Current trading is in line with the Board's expectationsin all parts of the business and ahead of 2003/4. We expect to see continuedgrowth through the year. The Group's growth strategy for 2005 is based on two objectives: to continue todevelop new revenue streams and products to cross-sell to our customers, and tocontinue to add scale through acquisitions. It is a great advantage to be in a position to build additional sales on awell-established and growing foundation of existing subscriptions. In additionto further developing the successful events and one-off publications businesses,the Company aims to add new formats including, for example, advertising whereappropriate. At the same time, the Company will continue to develop newsubscription products. In doing so it will seek to benefit from ongoinggovernment reform of the public sector, as well as the potential presented bythe under-development in the UK of newsletters as a medium in both professionaland consumer markets. Peter Rigby Chairman Julian Turner Chief Executive Electric Word PlcCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 30 November 2004 Restated Notes 2004 2004 2003 2003 £ £ £ £ TURNOVER 2 5,516,307 3,049,759 COST OF SALESMarketing costs (1,736,994) (1,101,085)Other cost of sales (1,866,148) (963,241) GROSS PROFIT 1,913,165 985,433 Operating expenses (net) (1,813,037) (1,408,115)Amortisation of goodwill (266,164) (139,626) Total administrative expenses (2,079,201) (1,547,741) OPERATING LOSS (166,036) (562,308) Interest receivable 6,763 5,013 LOSS ON ORDINARY (159,273) (557,295)ACTIVITIES BEFORETAXATION Taxation 3 399,580 150,000 PROFIT/(LOSS) ON ORDINARY 240,307 (407,295)ACTIVITIES AFTER TAXATION EARNINGS/(LOSS) PER SHAREBasic 4 0.25p (0.52)p Diluted 4 0.21p (0.52)p The operating loss 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. The comparative figures for the profit and loss account have been restated toreflect a more appropriate allocation of expenditure between cost of sales andadministrative expenditure. The restatement decreased the 2003 gross profit by£373,684 with no effect on the operating result for the year. Electric Word PlcCONSOLIDATED BALANCE SHEET30 November 2004 Group Group 2004 2003 £ £FIXED ASSETSIntangible assets 1,895,975 2,169,999Tangible assets 29,814 40,976 1,925,789 2,210,975 CURRENT ASSETSStocks 104,956 95,657Debtors 1,362,575 784,031Cash at bank and in hand 901,425 597,913 2,368,956 1,477,601 CREDITORS: Amounts falling due within one yearDeferred revenue (2,494,992) (2,248,299)Other creditors (802,781) (706,612) (3,297,773) (2,954,911) NET CURRENT LIABILITIES (928,817) (1,477,310) TOTAL ASSETS LESS CURRENT LIABILITIES 996,972 733,665 CAPITAL AND RESERVESCalled up share capital 950,139 945,139Share premium account 2,118,805 2,100,805Merger reserve 105,011 105,011Profit and loss account (2,176,983) (2,417,290) SHAREHOLDERS' FUNDS 996,972 733,665 Electric Word PlcCOMPANY BALANCE SHEET30 November 2004 Company Company 2004 2003 £ £FIXED ASSETSIntangible assets 1,895,975 2,169,999Tangible assets 29,814 40,976Investments 35,066 35,066 1,960,855 2,246,041 CURRENT ASSETSStocks 104,956 95,657Debtors 1,362,575 784,031Cash at bank and in hand 901,425 597,913 2,368,956 1,477,601CREDITORS: Amounts falling due within one yearDeferred revenue (2,494,992) (2,248,299)Other creditors (831,118) (734,949) (3,326,110) (2,983,248) NET CURRENT LIABILITIES (957,154) (1,505,647) TOTAL ASSETS LESS CURRENT LIABILITIES 1,003,701 740,394 CAPITAL AND RESERVESCalled up share capital 950,139 945,139Share premium account 2,118,805 2,100,805Profit and loss account (2,065,243) (2,305,550) SHAREHOLDERS' FUNDS 1,003,701 740,394 Electric Word PlcCONSOLIDATED CASH FLOW STATEMENTfor the year ended 30 November 2004 Notes 2004 2003 £ £ Cash flow from operating activities 5a 329,470 145,845 Returns on investments and servicing of finance 5b 6,595 5,013 Taxation - - Capital expenditure and financial investment 5b (15,553) (29,752) Cash inflow before acquisitions and financing 320,512 121,106 Acquisitions 5b - (1,087,089) Cash inflow/(outflow) before financing 320,512 (965,983) Financing 5b (17,000) 1,004,500 INCREASE IN CASH IN THE YEAR 303,512 38,517 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2004 2003 £ £ Increase in cash in the year 303,512 38,517 Cash to repurchase loan stock 40,000 - MOVEMENT IN NET FUNDS IN YEAR 343,512 38,517 NET FUNDS AT 1 DECEMBER 2003 557,913 519,396 NET FUNDS AT 30 NOVEMBER 2004 901,425 557,913 Electric Word Plc NOTES TO THE PRELIMINARY ANNOUNCEMENTfor the year ended 30 November 2004 1 This announcement was approved by the Directors on 21 February 2005. Thepreliminary results for the year ended 30 November 2004 are unaudited. Thefinancial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 30 November 2004 or 30 November2003. The financial information for the year ended 30 November 2003 isderived from the statutory accounts for that year, which have been delivered tothe Registrar of Companies. The auditors reported on those accounts and theirreport was unqualified. 2 TURNOVER The group's turnover and loss on ordinary activities before taxationwere all derived from its principal activity. Sales were made in the followinggeographical markets: 2004 2003 £ £ United Kingdom 5,381,917 2,974,382 Other 134,390 75,377 5,516,307 3,049,759 Profit/(loss) on ordinary Turnover activities before taxation Net assets Analysis by class of 2004 2003 2004 2003 2004 2003 business £ £ £ £ £ £ Public sector 4,481,376 2,192,298 173,613 (136,655) 1,145,519 971,906 management Sport and specialist consumer 1,034,931 857,461 10,846 (28,283) (214,560) (225,406) Group overheads - - (343,732) (392,357) 66,013 (12,835) 5,516,307 3,049,759 (159,273) (557,295) 996,972 733,665 3 TAXATION 2004 2003 £ £ Current tax: UK corporation tax on losses of the period 420 - Adjustments in respect of previous periods - - Total current tax 420 - Deferred taxation: Origination and reversal of timing differences (400,000) (150,000) Total deferred tax (400,000) (150,000) Tax on loss on ordinary activities (399,580) (150,000) Factors affecting tax charge for the period: 2004 2003 £ £ The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The differences are explained below: Loss on ordinary activities before tax (159,273) (557,295) Loss on ordinary activities multiplied by the standard rate (47,782) (111,459) of corporation tax in the UK of 30% (2003:small company's rate of 20%) Effects of: Expenses not deductible for tax purposes 4,066 1,507 Amortisation of intangible fixed asset 79,849 26,528 Capital allowances in excess of deprecation 4,333 (1,260) (Utilisation of)/unutilised tax losses (38,436) 84,684 Small companies relief (1,610) - Current tax charge for the period 420 - There are accumulated losses of £2.22 million (2003: £2.25 million) which,subject to agreement with the Inland Revenue, are available to offset futureprofits of the same trade. A deferred tax asset of £400,000 (2003: £150,000) has been recognised throughthe profit and loss account representing losses which are expected to reverse inthe foreseeable future. There is an unprovided deferred tax asset of £Nil(2003: £350,000). 4 EARNINGS/(LOSS) PER ORDINARY SHARE The calculation of earnings/(loss) per ordinary share is based on the following. 2004 2003 Weighted Weighted average Earnings average Loss Earnings number per share Loss number per share £ of shares p £ of shares p Basic earnings per share 240,307 94,913,854 0.25p (407,295) 78,010,621 (0.52)p Diluted earnings per share Basic earnings per share 240,307 94,913,854 0.25p (407,295) 78,010,621 (0.52)pDilutive effect of share - 9,885,481 (0.02)p - - -optionsDilutive effect of warrants - 9,720,680 (0.02)p - - - 240,307 114,520,015 0.21p (407,295) 78,010,621 (0.52)p CASH FLOWS 2004 20035 £ £a Reconciliation of operating loss to net cash inflow from operating activities Operating loss (166,036) (562,308) Amortisation 266,164 139,626 Depreciation 34,575 24,089 (Increase)/decrease in stocks (9,299) 6,714 Increase in debtors (178,544) (169,551) Increase in creditors 382,610 707,275 Net cash inflow from operating activities 329,470 145,845 b Analysis of cash flows for headings netted in the cash flow statement 2004 2003 £ £ Returns on investments and servicing of finance Interest received 6,595 5,013 Net cash inflow from returns on investments and servicing of finance 6,595 5,013 Capital expenditure and financial investment Purchase of tangible fixed assets (23,413) (29,752) Disposal of intangible fixed assets 7,860 - Net cash outflow from capital expenditure and financial investment (15,553) (29,752) Acquisitions Purchase of subsidiary undertaking - (1,131,250) Net cash acquired with subsidiary undertaking - 44,161 Net cash outflow from acquisitions - (1,087,089) Financing Issue of share capital 23,000 1,040,000 Equity share issue expenses - (35,500) Repayment of loan stock (40,000) - Net cash inflow from financing (17,000) 1,004,500 c Analysis of funds At At 30 1 Dec Nov 2003 Cash flow 2004 £ £ £ Cash at bank and in hand 597,913 303,512 901,425 Debt due within 1 year (40,000) 40,000 - 557,913 343,512 901,425 6 Copies of this announcement are available from the Company'sregistered office at 67-71 Goswell Road, London EC1V 7EP. 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