21st Aug 2007 07:01
Electric Word PLC21 August 2007 21 August 2007 ELECTRIC WORD PLC Interim results to 31 May 2007 140% PROFIT IMPROVEMENT AS MARGINS BENEFIT FROM ACQUISITIONS AND EFFICIENCIES RESULTS HIGHLIGHTS * Adjusted pre-tax profit* up 140% to £750k (£313k) * Organic profit improvement of 87% * Adjusted pre-tax margins* up to 11.4% (6.9%) * Turnover up 46% to £6.6m (£4.5m) * Adjusted pre-tax EPS* (diluted) doubles to 0.46p (0.23p) * Positive full-period contribution from Incentive Plus acquisition * Exciting strategic move into parents market * Trading in line with Board expectations * Before tax, goodwill, exceptionals, FRS20 and share-based payment costs andminority interests Julian Turner, Chief Executive of Electric Word, commented: "For the second successive year our interim results show very strong profitimprovement, reflecting both the successful integration of the acquisitions wecompleted last year and the Group's enhanced ability to build margin. With afirst complete half-year contribution from Incentive Plus, these resultsillustrate the benefit of increased scale, together with greater profitabilityfrom the continuing businesses as we make ever better use of our portfolio ofcomplementary products and revenue streams in our niche markets in education andsport. "We have identified particular opportunities in the parents' end of theeducation market where we have announced today a strategic investment and seeother opportunities. Both our key sectors are performing in line with ourexpectations and, supported by Government priorities, we believe the Group hasan excellent platform for further expansion in the rest of the year and beyond." ENDS Julian Turner, Chief Executive Electric Word 0207 954 3470 Tim Spratt / Nicola Biles Financial Dynamics 0207 831 3113 EXTRACTS FROM CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT The results for the half year to 31 May 2007 show the business deliveringfurther substantial improvements in both pre-tax profits and operating margins.The majority of the 140% increase in adjusted pre-tax profits derives from the87% profit improvement achieved in the continuing businesses, with the remainderresulting from the full benefit of last year's Incentive Plus acquisition. Overall, adjusted pre-tax profits rose to £750k (£313k) driven by adjustedpre-tax margins increasing from 6.9% to 11.4%. Equivalent earnings per share(fully diluted) doubled to 0.46p (0.23p). Acquisitions, including Incentive Plus and CKP in 2006 and Smallwood Publishingand Ark Sports in 2007, also supported Group turnover, up 46% to £6.6m (£4.5m).In the continuing business the strongest areas of growth were in the eventsbusiness, with revenue up 67%, and in books and reports, which grew revenue by53%. 2006 2007 £'000 £'000 Adjusted pre-tax profits 750 313 Amortisation of Goodwill (434) (308) Exceptional costs (103) (0) FRS20 and SBP costs (48) (16) Statutory pre-tax profits 165 (11) As set out in last year's Annual Report, the Group's strategic objectivescombine investment and improved efficiency. We aim to build margins by scalingup in established functions and sectors and by making the most of the wide rangeof revenue streams that the Group can now access. We have achieved this efficiency improvement, reflected in a 65% improvement inadjusted pre-tax margins, in two key ways. Firstly we have tried to improve thescale at which we are engaged in some functions while exiting or reducinginvestment from sub-scale activities which are unlikely to meet our futureprofit benchmarks. For example, as online and other marketing channels haveimproved our access to market we have significantly increased our investment inboth book and report publishing to increase the range of relevant products thatwe can source from the same underlying sector expertise. This year books andreports will account for over £1m of revenue and are likely to be an even moresignificant activity in the future. At the same time, we have reduced our investment in some areas that have becomesub-scale. What was described last year as the public sector we are nowredefining more tightly as the education sector, and this half-year, excludingthe acquisitions, it has delivered a 23% like-for-like increase in operatingprofits from a more focused revenue base. The second main route for improving efficiency has been through achievinggreater leverage from our existing Group infrastructure, both in systems andmanagement. We have continued the process of integrating and reducing the numberof back office systems, and following six acquisitions in 18 months over 2006-7we also reorganised the structure of companies and management within the Group,which incurred £103k of one-off exceptional costs this year. However as thebusiness has grown both organically and by acquisition, central Group operatingcosts have reduced as a proportion of turnover from 6.3% to 4.1%, emphasisingthe potential for further improving margins as the Group achieves even greaterscale in the future. Education sector 6 months 6 months % to 31 May 2007 to 31 May 2006 change Turnover £4,102,941 £2,658,113 54%Operating profit £609,731 £282,211 116%Operating margin 14.9% 10.6% Following the company reorganisation, the education sector comprises twobusinesses, Optimus Professional Publishing (OPP), including all Electric Word'sschool management and professional development publishing for this market, andIncentive Plus (IP), acquired in April 2006, which sells a further 1,600 ofother content producers' resources for teachers in the field of behaviour andemotional development. The full half-year contribution of Incentive Plus demonstrates the value of thisacquisition which has driven sales growth of 54% in the sector; indeed itachieved revenue growth of 27% compared to the same period last year on the backof an increased investment in marketing. There were also sales contributionsfrom the acquisition of CKP, also in 2006, and Smallwood Publishing, a muchsmaller competitor to Incentive Plus acquired in April 2007. Profits in thesector more than doubled, up 116% to £610k (£282k in 2006). Margins were boostedby both the IP acquisition and the organic profit improvements alreadydescribed, increasing to 14.9% from 10.6%. In addition to acquisitions and efficiency improvements we have been investingin three areas: the books business, in which we have published 14 new titles inthe current academic year, a new professional development newsletter launch onLearning & Teaching and continued investment in the teachers' professionaldevelopment portal www.teachingexpertise.com, launched in November 2006. Underpinning all these developments is the strong alignment between the Group'seducation business and the Government agenda that is shaping future educationpriorities. A major funded initiative that expands from primary to secondaryschools this autumn is around the Social And Emotional Aspects of Learning(SEAL) which is particularly relevant for the Incentive Plus product portfolioas well as several existing Optimus constituencies. This is combined with afurther emphasis on developing children's learning skills which requires asignificant shift in teaching styles and creates further professionaldevelopment demands; particularly relevant for our gifted and talented, specialneeds and teaching and learning niches. At the same time education is itselfincreasingly part of broader children's and family services, which resonateswith the Group's strength in child protection and our interest in the broaderparents market. Sport sector 6 months 6 months % to 31 May 2007 to 31 May 2006 change Turnover £2,502,152 £1,878,335 33%Operating profit £425,552 £309,921 37%Operating margin 17.0% 16.9% The Sport sector, which comprises the Sports Performance division andSportBusiness Group (acquired in December 2005), achieved 33% revenue growth inthe half-year. This was achieved despite the winding-down in the first quarterof the Asian Games publishing contract on the back of an excellent performancefrom the i-Gaming business and strong growth in SportBusiness conferences (up191%) and high-value research reports (up 48%). Margins also improved from 16.5% to 17.0%, driven by the increased profitabilityof the Sports Performance business as it continues to migrate online. The SportsPerformance network of websites has created a valuable community of approaching1m unique visits from competitive sportspeople per month which is now beingconverted into profits as marketing costs reduce. Online activity has also contributed to SportBusiness's success, both throughits e-marketing channel and the vitality of the i-Gaming space (despiteregulatory changes in the US last October) as brands look to Europe and Asia forexpansion where there is demand for information and desire to create newopportunities. Additionally SportBusiness has been driven by its valuable placein the global community of sports federations and cities competing to stagemajor events and the high importance of sports rights to both media businessesand brand advertisers. The Group's wide range of competencies across differentpublishing formats enables it to make the most of these and futureopportunities. Current trading and prospects Since the end of May the Group has made three further significant investments.The first has been in strengthening the management team by adding QuentinBrocklebank to the Board as Finance Director. Quentin has many years experiencein the specialist publishing sector and will further support the Group'scapacity and scalability. Natascha Lloyd, who has led the finance functionexcellently since the Company's inception, takes on the role of HR Director andcontinues as Company Secretary. Secondly, the growth achieved in the first half at Incentive Plus, together withfuture opportunities has supported relocation to larger premises and warehousingin August 2007. This gives the Group the infrastructure to scale up the currentoperation and build new commerce revenues both in the existing education sectorand outside it. This will be particularly valuable in the light of the third investment - astrategic move into the parents market. Education remains a burning issue forfamilies as well as the Government and there is a significant opportunity tosupport parents in the emotional and intellectual development of their children.Electric Word has therefore bought an option for £75,000 to make a phasedacquisition of all the shares in MyChild magazine. We have now acquired aninitial 10% tranche for £137,500, with the option to purchase a majority stakeby 30 November 2007 and 100% from a final earn-out based on 2008 results.MyChild has approximately 18,000 magazine subscribers and other customerslooking to get the most out of and to supplement their children's education..There is the opportunity to use Incentive Plus's infrastructure to significantlyexpand its commerce revenues and the expertise developed in the SportsPerformance business to build its web presence. Current trading is in line with the Board's expectations and delegate andadvertising sales bookings for the autumn are ahead of last year. The Boardcontinues to review acquisition opportunities and remains confident thatElectric Word can continue to expand and deliver increasing returns toshareholders in the years to come. Peter Rigby Chairman Julian Turner Chief Executive Definitions Adjusted pre-tax profits: Profits before tax and minority interests, excludinggoodwill amortisation, exceptionals, FRS20 and share-based payment costs Adjusted profits: Profits after tax excluding goodwill amortisation,exceptionals, FRS20 and share-based payment costs and minority interests Adjusted pre-tax margin: Adjusted pre-tax profits as a % of turnover Adjusted pre-tax EPS (diluted): Adjusted pre-tax profits per average shares inissue (fully diluted) ElectricWord plc CONSOLIDATED PROFIT AND LOSS ACCOUNT For the period ended 31 May 2007 6 months 6 months ended Year ended 31 May ended 31 May 2006 30 November 2007 (unaudited) 2006 (unaudited) (restated) (restated) Note £ £ £ TURNOVER 6,605,093 4,536,448 10,712,433 COST OF SALES Cost of sales (2,347,851) (1,419,415) (3,633,291)Marketing (1,211,442) (993,431) (2,160,353) (3,559,293) (2,412,846) (5,793,644) GROSS PROFIT 3,045,800 2,123,602 4,918,789 Other operating expenses (2,328,939) (1,834,408) (3,981,420)Amortisation of goodwill (434,391) (308,354) (704,003) TOTAL ADMINISTRATIVE (2,763,330) (2,142,762) (4,685,423)EXPENSES OPERATING PROFIT/(LOSS) 282,470 (19,160) 233,366 Exceptional 2 (102,684) - -costs Interest receivable 13,032 13,858 28,003Interest payable (28,331) (5,909) (64,962) PROFIT ON ORDINARY ACTIVITIES BEFORE 164,487 (11,211) 196,407TAXATION Taxation 3 (101,075) 72,005 72,611 PROFIT ON ORDINARY ACTIVITIES AFTER 63,412 60,794 269,018TAXATION Minority interests (36,094) (24,122) (27,037) PROFIT ON ORDINARY ACTIVITIES FOR THE 27,318 241,981FINANCIAL YEAR 36,672 EARNINGS PER SHARE 5 Basic 0.02p 0.03p 0.19p Diluted 0.02p 0.03p 0.16p ElectricWord plc CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the period ended 31 May 2007 6 months 6 months Year ended ended ended 31 May 31 May 30 November 2007 2006 2006 (unaudited) (unaudited) (restated) (restated) £ £ £ Profit for the period 63,412 60,794 269,018 Prior period (40,448) - -adjustment TOTAL GAINS AND LOSSES RECOGNISED SINCE LAST ANNUAL REPORT 22,964 60,794 269,018 Attributable to: - Equity holders of the (13,130) 36,672 241,981parent - Minority interests 36,094 24,122 27,037 The prior year adjustment represents the cumulative adjustment to reserves (note1). The prior periods' profits will have been adjusted by the amount thatrelates to those periods. ElectricWord plc CONSOLIDATED BALANCE SHEET At 31 May 2007 31 May 31 May 30 November 2007 2006 2006 (unaudited) (unaudited) (restated) (restated) £ £ £ FIXED ASSETS Intangible assets 6,388,465 6,460,236 6,122,743Tangible assets 333,850 210,308 313,900Investments - 90,000 90,000 6,722,315 6,760,544 6,526,643 CURRENT ASSETS Stocks 335,025 191,344 284,462Debtors due within one year 2,734,667 2,312,282 2,618,336Debtors due after more than one year 445,287 350,389 578,097Cash at bank and in hand 1,263,625 1,033,899 1,475,468 4,778,604 3,887,914 4,956,363 CREDITORS: Amounts falling due within one year Deferred revenue (2,873,373) (2,806,670) (3,079,905)Other creditors (1,892,370) (1,316,272) (1,828,246) (4,765,743) (4,122,942) (4,908,151) NET CURRENT ASSETS/(LIABILITIES) 12,861 (235,028) 48,212 TOTAL ASSETS LESS CURRENT LIABILITIES 6,735,176 6,525,516 6,574,855 CREDITORS: amounts falling due after more than one year (Note 6) (1,387,768) (1,713,099) (1,489,302) PROVISIONS FOR LIABILITIES AND CHARGES (408,925) (368,736) (330,592) NET ASSETS 4,938,483 4,443,681 4,754,961 CAPITAL AND RESERVES Called up share capital 1,423,442 1,368,942 1,381,442Share premium account 3,037,933 2,877,933 2,977,933Merger reserve 105,011 105,011 105,011Reserve for own shares (67,497) (24,209) (67,497)Reserve for Share Based Payments 72,557 15,927 54,448Profit and loss account 303,905 92,586 276,587 EQUITY SHAREHOLDERS' FUNDS 4,875,351 4,436,190 4,727,924 Minority interests 63,132 7,491 27,037 TOTAL CAPITAL EMPLOYED 4,938,483 4,443,681 4,754,961 ElectricWord plc CONSOLIDATED CASH FLOW STATEMENT For the period ended 31 May 2007 6 months 6 months Year ended ended ended 31 May 31 May 30 November 2007 2006 2006 (unaudited) (unaudited) (audited) £ £ £ CASH INFLOW/(OUTFLOW) FROM OPERATING 252,245 (395,259) 511,087 ACTIVITIES Returns on investments and servicing of 381 7,949 (11,769)finance Taxation (3,621) (11,650) (84,582) Capital expenditure and financial (73,915) (64,234) (226,815)investment CASH INFLOW/(OUTFLOW) BEFORE 175,090 (463,194) 187,921 ACQUISITIONS AND FINANCING Acquisitions (374,122) (2,013,657) (1,955,138) CASH (OUTFLOW) BEFORE FINANCING (199,032) (2,476,851) (1,767,217) Financing 102,000 2,630,073 2,362,008 (DECREASE)/INCREASE IN CASH IN THE (97,032) 153,222 594,791 PERIOD ElectricWord plc NOTES TO THE INTERIM REPORT For the period ended 31 May 2007 1 PRESENTATION OF INTERIM RESULTS This interim report was approved by the Directors on 20 August 2007. The resultsfor both the current and the comparative half year have not been audited, butwere the subject of an independent review carried out by the company's auditors,Baker Tilly UK Audit LLP. Their review confirmed that the figures were preparedusing accounting policies and practices consistent with those adopted in the2006 annual report and those that will be adopted for the 2007 annual report.The only change from the prior year's policies is the adoption of 'FRS20 -Accounting for Share-Based Payments' which has reduced the current year profitby £18,109 (period to 31 May 2006: £15,927; year to 30 November 2006 £19,140including the reversal of £14,000 previously recognised under UITF 17). Inaddition a charge of £21,308 was posted to the brought forward balances at 30November 2005 to restate. The audited results for the year ended 30 November 2006 are an abridged versionof the company's report and financial statements which have been filed with theRegistrar of Companies and on which the auditors gave an unqualified report. Thefinancial information contained in this interim report does not constitutestatutory accounts as defined by Section 240 of the Companies Act 1985. Allshareholders will receive a copy of this interim report, which can also beobtained from the company's registered office at 33-41 Dallington Street,London, EC1V OBB. 2 EXCEPTIONAL COSTS The exceptional costs relate to the costs of a fundamental reorganisation of thebusiness as described in the annual report for the year ended 30 November 2006.This resulted in a significant change in managements' responsibilities and arestructure of the businesses in to four subsidiaries matching the Group's majorbusiness units. The costs associated with this included some redundancy andlegal and financial assistance. 3 TAXATION The Group has recognised deferred tax assets in respect of losses as follows: Deferred tax £ 1 December 2006 729,297 Transfer to profit and loss account (60,360) 31 May 2007 668,937 The tax charge is estimated based on the expected full year rate of taxation.This has been estimated as follows: % Standard rate of corporation tax in the 30 UK Expenses not deductible for tax purposes 3 Amortisation of intangible assets 53 Utilisation of tax losses (52) Current tax rate 34 Utilisation of tax losses and movement 26 on deferred tax asset Foreign tax paid 2 Effective tax rate 62 4 DIVIDENDS The directors do not recommend the payment of a dividend. 5 EARNINGS PER SHARE Basic and diluted earnings per share are based on the profit for the financialyear and on the following weighted average number of shares in issue. Earningsper share has been diluted to reflect the impact of share options and warrants. Period ended 31 May 2007 138,603,572 (Diluted:161,858,452) Period ended 31 May 2006 113,262,580 (Diluted:137,369,163) Year ended 30 November 2006 125,258,369 (Diluted:149,414,681) 6 CREDITORS: Amounts falling due after 6 months 6 months Year more than one year ended ended ended 30 31 May 31 May November 2007 2006 2006 £ £ £ Bank loan 407,267 600,000 500,000 Obligations under 49,005 85,474 70,153 finance leases Other loans - 127,000 - Preference shares 931,496 900,625 919,149 1,387,768 1,713,099 1,489,302 7 CASH FLOWS 6 months 6 months Year ended ended ended 30 November 31 May 2007 31 May 2006 2006 (unaudited) (unaudited) (restated) (restated) £ £ £a Reconciliation of operating profit to net cash inflow from operating activities Operating profit/(loss) 282,470 (19,160) 233,366 Exceptional costs (102,684) - - Amortisation 434,391 308,354 704,003 Depreciation 53,965 57,297 107,410 Increase in stocks (24,126) (19,650) (90,086) Increase in debtors (19,584) (46,714) (626,481) (Decrease)/increase in creditors (390,296) (691,313) 149,735 Share based payment 18,109 15,927 33,140 Net cash inflow/(outflow) from operating activities 252,245 (395,259) 511,087 b Reconciliation of net cash flow to 6 months 6 months Year ended movement in net funds ended ended 30 November 31 May 2007 31 May 2006 2006 £ £ £ (Decrease)/increase in cash in the (211,843) 153,222 594,791 period Cash outflow/(inflow) from decrease/(increase) in debt and lease financing 114,811 (730,072) (612,561) Change in net debt resulting from (97,032) (576,850) (17,770) cash flows Loans acquired with subsidiary - (127,000) - Movement in net funds in year (97,032) (703,850) (17,770) Net funds at beginning of period 716,852 734,622 734,622 Net funds at end of period 619,820 30,772 716,852 c Analysis of funds At 1 Other At 31 December non cash May 2006 Cash flow changes 2007 £ £ £ £ Cash at bank and in 1,475,468 (211,843) - 1,263,625|hand Debt due within one (150,000) 92,733 (92,733) (150,000)year Finance leases due (38,463) 22,078 (21,148) (37,533)within one year Debt due after one (500,000) - 92,733 (407,267)year Finance leases due (70,153) - 21,148 (49,005)after one year 716,852 (97,032) - 619,820 RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS 6 months Reserve Profit 6 months ended 31 Share for own and ended 31 May 2006 Share premium Merger shares Reserve loss May 2006 capital account reserve for SBP account (restated) £ £ £ £ £ £ £ £ At 30 1,381,442 2,977,933 105,011 (53,497) - 317,035 4,727,924 1,090,855 November Prior year - - - (14,000) 54,448 (40,448) - - adjustment (note 1) At 1 December 1,381,442 2,977,933 105,011 (67,497) 54,448 276,587 4,727,924 1,090,855 Profit - - - - - 27,318 27,318 36,672 attributable to members of the holding company Issue of 42,000 60,000 - - - - 102,000 3,292,736 shares Share based - - - - 18,109 - 18,109 15,927 payments At 31 May 1,423,442 3,037,933 105,011 (67,497) 72,557 303,905 4,875,351 4,436,190 9 ACQUISITIONS On 5 February 2007 the Group acquired 100% of the issued share capital ofArkSports Limited ("ArkSports") for a consideration of £92,881 and £15,245 ofrelated costs. On acquisition ArkSports had net assets of £1,074, including£6,314 of cash, against which a fair value adjustment of £772 was made to writeoff the Tangible Fixed Assets. ArkSports is a specialist conference and researchbusiness in the sport and technology sector. In the year to 31 March 2006ArkSports made a loss after tax and dividends of £12,000 off revenue of £80,000.In the period to 31 January 2007 ArkSports made a profit after tax and dividendsof £8,000 off revenue of £30,000. In the period to 31 May 2007 ArkSportscontributed £(5,683) to the group's result and £(9,614) to the group's netoperating cash flows. On 1 May 2007 the Group acquired 100% of the issued share capital of SmallwoodPublishing Ltd ("Smallwood") for cash consideration of £182,000 initial andmaximum £75,000 contingent (over two years) plus £8,135 of related costs. Onacquisition Smallwood had net assets of £48,031, including £8,365 of cash,against which fair value adjustments were made to write off £480 of TangibleFixed Assets and £2,930 of Debtor balances carried and provide for £14,750 ofcosts (including onerous rent lease and redundancies). Smallwood is a cataloguebusiness supplying educational resources to schools and professionals. In theyear to 30 April 2007 Smallwood made a loss after tax and dividends of £40,000off revenue of £210,000. In the period to 31 May 2007 Smallwood contributed£2,248 to the group's result and £9,915 to the net operating cash flows. On the acquisition of DMWSL 370 Limited made in the previous year, adjustmentswere made this year to the goodwill carrying value to write off an investment of£90,000, provide £132,119 of deferred / contingent consideration subsequentlypaid and related to an acquisition made prior to acquisition in this Group,reflect £34,558 of creditor movements and include £60,886 of related costs. Onother acquisitions made in the previous year, costs of £29,654 have beenincluded in the goodwill with respect to Incentive Plus Limited and IncentivePublishing Limited but £9,808 has been taken off Chris Kington Publishing toprovide for slow moving stock. As a result of the acquisitions and adjustments to prior year acquisitions madein the period goodwill of £700,113 has been recognised and is being amortisedover 10 years. The net cash flow on acquisitions was £388,801 less £14,679 ofacquired cash. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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