Interim Results

14 July 2011

ELECTRIC WORD PLC

Interim Results to 31 May 2011

Electric Word, the specialist information publisher, announced today interim results for the six months ended 31 May 2011.

Key Financial Points

·; Revenue of £7.7m down 6%, as expected with growth in Business Information division mitigating slow sales in Education sector

·; Business Information division shows profit growth of 84% (25% organic, 59% acquired) from £0.4m to £0.7m

·; Adjusted profit before tax* of £0.5m (May 2010: £0.9m) after reduction in high-margin education conference delegate revenue and continued investment in product and online development

·; New health sector profitable in first period and performing to expectations

·; Continued cash generation from operations despite acquisition costs and reducing payables by over £0.5m since year end

·; Net debt† remains low at £0.8m (May 2010: £0.5m)

* Adjusted numbers (note 3) exclude amortisation and impairment of goodwill and intangible assets, restructuring and acquisition-related costs and share based payment costs, and any related tax impact of those, and non-cash tax charges. Non-cash tax charges relate to movements on deferred tax such as the use of tax losses and tax credits from recognition of tax losses. The adjusted earnings per share ("eps") are fully diluted.

† Net debt includes bank overdrafts and loans, but excludes deferred and contingent consideration.

Key Operational Points

·; Education spending has been slow from Q4 2010 as schools budget conservatively but medium-term growth opportunities coming into focus, with new higher-value online service planned for launch in January 2012

·; Acquisition of Radcliffe saw Group enter the health sector - Integration going well and bolstered by acquisition of HR software provider Ikonami in April 2011

·; First health sector conferences marketed and training course programme significantly increased

·; Contract buy-out of iGaming partner meeting expectations and Business Information division continues to perform strongly

·; Continued investment in digital product and other areas of growth

·; Current trading in line with Board's expectations for 2011

·; Future opportunities for organic and acquired growth

Julian Turner, Chief Executive of Electric Word, commented:

"Despite a tough market environment in Education, which remains our largest sector, the Group has continued to develop and invest in 2011. We see a lot of opportunity for providing professional development support in the Health sector and are pleased with the initial positions we have acquired. The process of building on the strengths of both businesses and adding new organic investment initiatives has already started. In this investment period we are benefitting greatly from the continuing strength and growth of the Business Information division which has performed well across both the business of sport and online gaming.

Current trading is in line with the Board's expectations. This is however against a back drop of a tough macro market and sales in education remain hard work. Business Information continues to trade very well, although it will not cover a further shortfall in education if that revenue drops further. The Group's focus in the second half will continue to be on the ongoing investment in product and online development and Group infrastructure, together with appropriate actions to protect profits.

The next few years promise growth opportunities in the Group's chosen markets and the Board fully expects Electric Word to make the most of those opportunities from the foundation provided by its established market positions and valuable publishing assets."

* Adjusted numbers (note 3) exclude amortisation and impairment of goodwill and intangible assets, restructuring and acquisition-related costs and share based payment costs, and any related tax impact of those, and non-cash tax charges. Non-cash tax charges relate to movements on deferred tax such as the use of tax losses and tax credits from recognition of tax losses. The adjusted earnings per share are fully diluted.

† Net debt (note 7) includes bank overdrafts and loans, but excludes deferred and contingent consideration.

ENDS

Notes to Editors

Electric Word plc is a specialist media company operating in attractive and information-hungry niche markets. That information is provided in a wide range of digital, paper and live formats through three divisions:

·; Professional: provides professional development and other resources to the public sector through professional communities in schools, primary health care and other institutions, including school leaders and managers, teachers, special needs and speech therapy professionals and General Practitioners and practice managers - primarily in the UK.

·; Business information: is an international provider of insight and analysis across the business of sport (for international sports federations, brands and sponsors, broadcasters and media, major event organisers), and includes a valuable niche in the online gaming industry, for both the affiliates that market the gaming sites and the industry itself.

·; Specialist consumer: provides high-quality niche content, mainly online, to specialist consumer markets including sport, aimed at competitive athletes and coaches, and education, providing information for parents to support their children's schooling and development.

The range of products and services offered to these communities include subscription content, magazines, websites, events, books, special reports and bespoke research and publishing.

In the Half Year 2011 60% (2010: 61%) of revenue came from selling content, including 23% (2010: 21%) from subscription revenue, and 40% (2010: 39%) came from selling access to these communities.

The Company was founded in 2000 and has grown steadily through a combination of organic growth and acquisitions, of which it has made 16 so far.

With net debt† at May 2011 of only £0.8m against adjusted EBITDA* of £2.1m for the 2010 financial year, the Directors believe Electric Word is well capitalised.

Electric Word is characterised by a highly analytical approach based on detailed marketing reporting and financial modelling to ensure that investment and effort are clearly focused on the areas of greatest long-term return.

Electric Word plc

INTERIM RESULTS TO 31 May 2011

Chairman's and Chief Executive's Statement

This has been a very difficult period for the Group's education business due to the pressure that these revenues have been under. There has been a successful start to the health sector publishing and organic growth across the Business Information division, however these cannot make up for the drop in education revenue and profit against the equivalent period last year.

The education comparison looks especially poor as whereas this year has started under the cloud of short term economic uncertainty for the schools, the prior year period had no such impact and indeed had an especially strong start in its events ahead of the May 2010 general election, which triggered the period of slow spending across education. 2010 profits therefore benefitted both from the higher revenue, stronger returns on marketing spend, and that it was geared for the expected recession and thus as explained at the time saw margins higher than could normally be expected. 2011 conversely suffers as the incremental revenue lost across events and subscriptions are very high margin leading to an 80% drop in adjusted EBITA in the education business. At the same time, the remaining revenue has required higher marketing spend, delivering positive but lower returns.

It is pleasing therefore that the Group's diversification has helped in this difficult time, with Business Information outperforming the prior period by 25% on organic adjusted EBITA* and justifying the investment in it earlier this year in buying its partner out of its share of the affiliate side of the online gaming business.

It is also a credit to the strength of the Group's finances and its shareholder support that it was able to buy a starting position in the health sector at the end of last financial year and add to it this year. The Group's addition very late in 2010 of health sector publishing to its Professional division through the acquisition of Radcliffe Publishing has started promisingly in 2011. The books business has been merged with the Group's existing education based book publishers, both sharing costs and leveraging skills. Its journals have added a new product type to the Group but will be helped by our existing subscription skills, notably in fulfilment and marketing. The training course programme has been substantially increased and conference events have been started by the Group's existing Professional events team.

The health sector offering was further boosted in April by the acquisition of Ikonami Limited, a leading provider of software for the management and compliance reporting of appraisals, training and professional development within the NHS. The acquisition is highly complementary to the Radcliffe Publishing range of products and offers good opportunity for organic growth.

These two businesses have already been merged into the Group and synergy cost savings taken, although further synergy benefits will continue to be mined. These health sector assets have started in line with expectations and present an exciting opportunity to the Group to invest organically and build to scale.

The Business Information division has grown on the prior year. Online gaming is aided by the buy-out of its partner on the affiliate side of the business, which has met expectations and has grown its events. In the business of sport sector several new opportunities are being worked on. The niche of TV Sports Markets is growing consultancy and analysis on top of its core data rich subscription business, a new subscription product has been launched to the sponsorship niche and new contract publishing deals have been signed with sports federations.

Online development also continues in the specialist consumer division to enhance its strength of offerings while also continuing to increase the content depth and consumer reach across the education, sports and health products. Whilst that progress continues, subscribers have increased by some 67% on www.TheSchoolRun.co.uk which helps parents assist on their children's education.

The Group's low level of gearing still leaves it in a strong position and able to take advantage of available growth opportunities. To aid this, the Group continues to consolidate or cut lower margin activities and products while investing in digital product and other areas of growth. Cash conversion in the period has continued solidly reflecting underlying strength and resilience in the businesses (as explained in the 'financial review' section below). 

* Adjusted numbers (note 3) exclude amortisation and impairment of goodwill and intangible assets, restructuring and acquisition-related costs and share based payment costs, and any related tax impact of those, and non-cash tax charges. Non-cash tax charges relate to movements on deferred tax such as the use of tax losses and tax credits from recognition of tax losses. The adjusted earnings per share are fully diluted.

Margins have suffered as lost revenue in education has been the most profitable in the form of incremental subscribers and delegates. The group has continued to invest in its products, and will continue to do so as the changing political agenda drives both considerable product reorientation and new opportunities. This will enable the education business to maintain its niche positions and ensure it is well placed to come back in the medium term.

The 2010 margins in Professional were described at the time as a temporary high (for now) but the 2011 high margins in Business Information are expected to be sustainable.

Professional division

The Professional division has provided specialist management and professional development information for those in the education sector for many years. At the end of 2010 this was expanded through acquisition into the health sector with similar information provisions. 

Professional education sector

In the 2010 Annual Report this sector was described as having a weak Q4 as school spending was put on hold while waiting on the size, allocation and mechanics of future budgets to come through following the comprehensive spending review ("CSR"). That was expected to be much clearer to them by now and so we envisaged, like many, that spending would slowly return in 2011. That return has not yet started across most of the business although new subscription sales are beginning to move ahead of last year's levels.

This has created a very tough economic environment for the business, like many of its competitors. The sector's performance year on year is made to look even worse by the spending slow down last year not starting until the general election in May and the sector had a very strong Q1 ahead of that with significant event successes which were not expected to be matched this year.

Overhead cuts were made ahead of the anticipated slow down. Indeed cost reductions were made in 2009, alongside the continued removal of low margin products. Resource was kept low through 2010 and, without the full year impact of the revenue decline, this resulted in record profit margins in 2010 of 21%.

With the reduced revenue in 2011 those margins could not be expected to be maintained. Despite the market conditions we have, as previously mentioned, maintained our plan to invest in the migration of the paper newsletters online - a process which is on track to make its January 2012 launch date and will ultimately, we believe, lead to a higher margin business that delivers more to its customers. Margins are further impacted as the revenue lost has notably come on subscriptions and events and incremental revenue on such products is the most profitable. Investment in marketing has continued but returns on this whilst still positive are lower.

The evolving market situation is being monitored closely and all scenarios continue to be considered. If further reductions in cost appear to be possible without longer term damage to the strength of our positions in niche markets, then they will be taken in H2.

The Optimus and Speechmark businesses both address topics that are expected to continue to be seen as important during the next few years: child protection, special needs education, teaching improvement, management effectiveness and behaviour remain important priorities for schools. What will change is the context in which schools are making buying decisions and the nature of the support they receive from Local Authorities and other public organisations.

Currently these changes are causing schools to stop and reassess how their management support and compliance needs are met. However in the medium term the new political environment presents real opportunities for growth. The Government's agenda to further devolve management authority to schools and cut out or reduce the intermediate tier residing in Local Authorities will mean that schools will need to look more to the private sector for information and advice to support school improvement and the management of risk. This creates a significant opportunity but will require some product redefinition and, in many cases, different delivery formats. We believe the Group is well placed to achieve that with its broad range of experience across different content formats and its established and respected brands.

Professional health sector

Radcliffe Publishing, acquired in November 2010, is a specialist publisher founded in 1987 and rich in content through an extensive booklist, six journals and a small learning course portfolio. Similar to the Group's education sector it focuses on professional development and compliance in General Practice and primary healthcare - markets likely to be stimulated by the future Government reform once the programme of change has been set out in detail.

The business was relocated in January to the Group's office in Milton Keynes and the back office functions merged at that time to complete the process of recognising all expected synergy cost benefits identified at the acquisition stage. This has been taken one stage further with the Group subsequently merging its management and operations across all three of its professional book businesses (Radcliffe, Speechmark and Optimus Education) to save costs and share best practices and skill sets. Each of the three businesses had strengths and weaknesses in different areas so this should much improve operational efficiency. 

The Group is building on the strength of Radcliffe, notably leveraging Electric Word's expertise in marketing through databases and e-channels and in events with the first branded events now marketing. The course portfolio has also been significantly enhanced with a dedicated team now running a range of learning programmes across the primary health sector and into hospitals supporting career development.

In April the Group announced the acquisition of Ikonami which is a leading provider of software for the management of appraisals, training and professional development within the NHS. The acquisition is highly complementary to Radcliffe. Ikonami offers three main software solutions supporting HR management, compliance and professional development within the NHS. The three software solutions are currently used by or on behalf of over 1.2m people in the NHS, across 410 NHS Trusts, but it is believed that much further market penetration could be achieved based on the strong user feedback on the tools and their benefits together with market changes happening.

business information division

In contrast to the Professional division, Business Information sees its own micro economic cycles and has proved resilient in the face of the recent macro economic pressures. The Group has therefore invested in this division to support organic revenue growth across both its two sectors of the business of sport and online gaming.

In January the Group also bought out its partner on the affiliate side of the gaming sector, Affiliate Media, Inc., who under that contract was entitled to approximately half the pre-tax profits which in 2010 cost over £0.3m. Two successful major events have been run in this space in the period and continued growth year on year has been achieved. Recent jurisdictional action in the US led to a short-term reduction in spending by some online gaming brands but the outlook for the sector as a whole continues to be very positive as global growth in online gaming continues and the US itself represents further future potential.

The business of sport sector operates on a four year cycle with last year, as the year following conclusion of a summer Olympic bid process, being the lowest point. Year on year revenue then tends to grow through to the next summer games bidding year. On top of that the continued significance of sport in international development and regional competition underlines the value of the SportBusiness brand as a communications partner for sport governing bodies, national governments and other organisations. This has translated into growing demand for its contract publishing arm. Equally, the importance of sports events to world media businesses and the value of broadcasting revenue to sports event organisers drive the value of the data and analysis provided by the TV Sports Markets subscription service and its new high-value consultancy and bespoke research arm. This model has now been extended with the launch of a new subscription service mixing data, interactive reporting and analysis of sports sponsorship deals, called Sports Marketing Frontiers.

Specialist consumer division

The Division continues to be the consumer arm to the other two much larger divisions, mirroring their market sectors of education, health and sport. It does so through two sub sectors of sports performance and education.

The sports performance business publishes sports science information for competitors, coaches and physiotherapists. It does so through predominantly online channels under the Peak Performance and Sports Injury Bulletin brands. Both are in the process of redeveloping their websites and expanding their content. The former, which is aimed at elite and other highly dedicated competitors, will be complemented by more material for the broader group of sports participants. At the same time Sports Injury Bulletin will benefit from Radcliffe's expertise in providing professional development support to other professions allied to health as it builds its offering.

The consumer education business, The School Run, is aimed at parents and is a subscription-based website with some advertising and a growing range of one-off books. The School Run is still a young business and is currently running at a small loss as it continues to invest in the depth and quality of the subscriber area to create a complete learning journey for parents as their children develop through the different stages of their education. However the business is steadily building subscriber numbers which increased from 3,000 in April 2010 to over 5,000 in April 2011.

Central costs

Despite the reduction in revenue the Group's central costs continue to represent only 4% of the Group's revenue. This reflects a continued review of resource levels and infrastructure required.

Within interest is non-cash payable interest (calculated notional interest on deferred and contingent consideration where no interest is actually payable as required under IFRS) of £4,000 (2010: £nil). Interest payable is marginally higher than the previous year reflecting the new terms of the bank loan extended in January 2011 to November 2014 (note 7).

FINANCIAL REVIEW

The underlying cash performance of the Group has remained solid. In the period over £0.6m of payables were cleared, an amount which was stretched by the acquisition activity with fees in relation to the November placing and acquisition. Adding back that abnormally high level of payables and conversion would be running at around 100%.

The Group had cash of £2.1m at the start of the year. That cash was set for acquisition spend in this period (and £1.2m has been spent on such including acquisition-related costs), to cover the high payables balance and to spend on website development (£0.1m spend in period). With the solid underlying cash conversion the Group has retained a cash balance of £0.6m at the period end despite paying down £0.1m of the Bank term loan.

Current Trading and Prospects

Current trading is in line with the Board's expectations. This is however against a back drop of a tough macro market and sales in education remain hard work. Business Information continues to trade very well, although it will not cover a further shortfall in education if that revenue drops further. The Group's focus in the second half will continue to be on the ongoing investment in product development and Group infrastructure, whilst reviewing all possible cost reductions that can be made and profit defences.

The next few years promise growth opportunities in the Group's chosen markets and the Board fully expects Electric Word to make the most of those opportunities from the foundation provided by its established market positions and valuable publishing assets.

Peter Rigby Chairman

Julian Turner Chief Executive

Electric Word plc

The result for the period arises from the Group's continuing operations.

Electric Word plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 31 May 2011 - unaudited

Electric Word plc

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 31 May 2011 - unaudited

Electric Word plc

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 May 2011 - unaudited

Electric Word plc

CONSOLIDATED CASH FLOW STATEMENT

For the period ended 31 May 2011 - unaudited

Electric Word plc

NOTES TO THE INTERIM REPORT

For the period ended 31 May 2011 - unaudited

1 PRESENTATION OF INTERIM RESULTS

GENERAL INFORMATION

Electric Word plc (the "Company") is a company incorporated in the United Kingdom. The unaudited condensed set of consolidated financial statements as at May 2011 and for the six months then ended comprise those of the Company and its subsidiaries (together referred to as the "Group").

The information for the six months ended 31 May 2011 and the comparative information for the six months ended 31 May 2010 are not audited by the Group's auditors. The comparative figures for the financial year ended 30 November 2010 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The consolidated financial statements of the Group as at and for the year ended 30 November 2010 are available upon request from the Company's registered office at 33-41 Dallington Street, London, EC1V 0BB or at www.electricwordplc.com.

ACCOUNTING POLICIES AND ESTIMATES

The financial statements have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union. The condensed set of consolidated financial statements included in this interim report has been prepared in accordance with International Accounting Standards 34 "Interim Financial Reporting", as adopted by the European Union.

The accounting policies, presentation and methods of computations applied by the Group in its consolidated financial statements are consistent with those applied by the Group in its consolidated financial statements for the year ended 30 November 2010.

The preparation of the condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and income and expense. Actual results may differ from these estimates.

In preparing these condensed set of consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that were applied to the consolidated financial statements as at and for the year ended 30 November 2010.

GOING CONCERN

The Group has a net current liability position as at 31 May 2011. The directors believe from reviewing the Group's cash flow forecasts that it is appropriate to prepare the financial statements on a going concern basis. There is long term financing in place and the Group continues to maintain positive cash flows excluding acquisition spend. The directors have prepared forecasts for the period to 30 November 2012 to support this view.

2 SEGMENTAL INFORMATION

Segmental information is presented in respect of the Group's business divisions. This format is based on the Group's management and internal reporting structure, as seen by the Board in its financial information used in allocating resources and making strategic decisions.

The format consists of three market sectors and a central function:

·; Professional (P): serving professional communities in schools, health care and other institutions with management information and professional development;

·; Business Information (BI): for the business communities behind sport and online gaming;

·; Specialist consumer (SC): specialist advice and instruction for individuals' needs in both sport -competitive athletes, coaches and physiotherapists - and education - parents looking to support their children's educational development; and

·; Central costs (PLC): the group function represents central PLC costs which are not directly related to the sector trading and are not recharged. Finance costs and investment income are also included here as these are driven by central policy which manages the cash positions across the Group.

The sector analysis includes the adjusted definition of operating profit (note 3) to allow shareholders to gain a further understanding of the trading performance of the Group and is considered by the Board alongside operating profit and profit before tax to assess performance and review strategy.

3 ADJUSTED PROFITS

The adjusted profits have been prepared to allow shareholders to gain a further understanding of the trading performance of the Group. Profits are adjusted for items not perceived by management to be part of the underlying trends in the business and the related tax effect of those items.

Adjusted numbers exclude amortisation and impairment of goodwill and intangible assets, restructuring and acquisition-related costs and share based payment costs, and any related tax impact of those, and non-cash tax charges. Non-cash tax charges relate to movements on deferred tax such as the use of tax losses and tax credits from recognition of tax losses.

The adjustments add back items which have no cash impact or that are both not trade related and of a non-recurring type. All of the items have no cash impact, except for the restructuring and acquisition-related costs, and any related tax impact of those, which are excluded as they are not in the normal course of trading and are not recurring.

Acquisition-related costs in the period relates to the Affiliate Media contract buyout and the acquisition of Ikonami Limited (note 9). The costs include legal fees, commercial, financial and tax due diligence and advice, bank consent fees and stamp duty.

Notes to the tables:

(i) A reduction to goodwill of £112,000 (31 May 2010: £45,000 and 30 November 2010 £nil) was booked under IFRS in relation to the acquisition of DMWSL 370 Limited. The acquired entity contained substantial unrecognised tax losses which on subsequent recognition cause a reduction of the goodwill recognised at the acquisition date.

(ii) Restructuring costs in 2010 of £138,000 were incurred following the acquisition of Radcliffe Publishing as several book lines were deemed non-core to the new merged Group professional development and compliance books business.

(iii) The restructuring and acquisition-related costs were all considered to be taxable items for corporation tax and thus attributable tax has been added back in the relevant periods at the relevant rate (note 4). All other adjusting items do not have a tax affect on the Group.

4 TAXATION

UK corporation tax is calculated in 2011 at 26.7% (28% for the first four months of the financial year and 26% for the remainder, 2010: 28%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

The total tax charge can be reconciled to the accounting profit as follows:

5 DIVIDENDS 

The directors do not recommend the payment of a dividend.

6 EARNINGS PER SHARE

The calculation of earnings per ordinary share is based on the following:

7 ANALYSIS OF NET DEBT

The Group has two types of lending facility from its Bankers. The first is an overdraft facility of £750,000 which when utilised is repayable on demand and charges an effective interest rate of 2.5% over the lending Bank's base rate. The second is a loan facility which at the start of the year was a revolving credit facility for £1,500,000 which was due to expire in May 2011. This was converted in January 2011 into a term loan of £1,500,000 repayable over four years with repayments started in May 2011 and ending in November 2014. The repayments are structured as equal annual amounts with one third paid in May and two thirds in November in line with the Group's cash flow profile. Interest is payable at 4.25% over LIBOR.

On the acquisitions of Radcliffe Publishing and Ikonami there is deferred and contingent consideration debt. On Radcliffe there will be an earn out dependent on the gross profit in the year to November 2012 with £257,000 provided against a maximum of £800,000. On Ikonami deferred consideration of £86,000 is being paid equally over 12 months starting in April 2011 and £150,000 is due in January 2012. There is also contingent consideration based on profit in the year to November 2013 with £550,000 provided net of notional interest (£67,000 yet to be charged as at 31 May 2011) against a maximum of £2,000,000.

8 CAPITAL AND RESERVES

In this period 198,918 share options have been exercised (31 May 2010: nil and 30 November 2010: 8,657,158). In November 2010 the Group announced a placing of 61,309,331 ordinary shares at a price of 4.25 pence to raise £2.6m gross of costs.

The reserve for own shares relates to the Share Incentive Plan under which the Group owns 1,689,871 shares (31 May 2010: 1,790,328 shares; 30 November 2010: 1,746,259 shares).