Interim Results

RNS Number : 9395O

Electric Word PLC

07 July 2010

 

 

7 July 2010

 

ELECTRIC WORD PLC

Interim Results to 31 May 2010

 

 

Electric Word, the specialist information publisher, announced today interim results for the six months ended 31 May 2010.

 

 

·; Revenue of £8.2m down 6%, as prioritising profits over revenue

·; Profit improvements in professional education and sport business lift Group operating margin* to 12% (2009: 10%), despite investment in specialist consumer division

·; Adjusted profit before tax* up 11% to £0.9m

·; Adjusted earnings per share* down 22% following placing in August 2009

·; Net debt1 down from £3.7m at May 2009 to £0.5m at May 2010

·; Adjusted cash generation from operations* reaches high of 118%

·; Current trading is in line with the Board's expectations for 2010

·; Future opportunities for organic and acquired growth

·; Education spending cuts will impact short-term but also create medium-term growth opportunities

 

* Adjusted numbers, as set out in note 3, exclude amortisation and impairment of goodwill and intangible assets, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, the use of tax losses and tax credits from recognition of tax losses, and notional accounting charges. The amount for notional accounting charges encompasses the unwinding of discounts on preference shares and provisions and share based payment costs. The adjusted earnings per share number is fully diluted.

 

1 Net debt includes bank overdrafts and loans, other loans and finance leases net of cash held (note 7) and also at May 2009 only (as £nil in other periods) deferred consideration of £5,000 and later redeemed preference shares of £987,500. It does not include preference shares which were later converted (again relevant to May 2009 only).

 

 

Julian Turner, Chief Executive of Electric Word, commented:

 

"Appropriately for the current economic environment the Group has prioritised profit over revenue across all businesses to protect and strengthen margins. Compared to the same period last year margins have increased from 10% to 12% despite continued investment in new products and areas of likely growth.

 

Current trading is in line with the Board's expectations. Our focus in the first half of the year on profitability over revenue will continue into the second half, together with the ongoing investment in product development and Group infrastructure. We see great opportunities for Electric Word in each of our markets, not least in the medium-term for the Education division in the light of the new Government's planned changes which will increase schools' need for management information and support and reduce the role of Government in providing it."

 

 

Financial summary (£'000)	2010 6 months	2009 6 months	Percentage change	2009 12 months
Revenue	8,183	8,724	-6%	16,481
Gross Profit	3,678	3,808	-3%	7,431
Adjusted EBITDA*	1,035	987	5%	2,249
Depreciation	(80)	(78)		(182)
Adjusted EBITA*	955	909	5%	2,067
Adjusted profit before tax*	925	832	11%	1,938
Less: amortisation and impairment	(322)	(238)		(1,137)
Less: restructuring costs / non-recurring gains	-	-		(295)
Less: notional accounting charges	(146)	(63)		(151)
Profit / (loss) before tax (PBT)	457	531	-14%	355
Diluted earnings per share	0.10p	0.18p	-44%	0.04p
Adjusted earnings per share*	0.29p	0.36p	-19%	0.84p
Cash generated by operations before interest and tax	953	269	254%	574
Cash balance (net of overdrafts)	992	198	401%	704
Net debt1	(510)	(3,703)		(1,403)

 

*Adjusted numbers, as set out in note 3, exclude amortisation and impairment of goodwill and intangible assets, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, the use of tax losses and tax credits from recognition of tax losses, and notional accounting charges. The amount for notional accounting charges encompasses the unwinding of discounts on preference shares and provisions and share based payment costs. The adjusted earnings per share number is fully diluted.

 

1 Net debt includes bank overdrafts and loans, other loans and finance leases net of cash held (note 7) and also at May 2009 only (as £nil in other periods) deferred consideration of £5,000 and later redeemed preference shares of £987,500. It does not include preference shares which were later converted (again relevant to May 2009 only).

 

ENDS

Julian Turner, Chief Executive
Electric Word	020 7954 3470
Andrew Potts / Callum Stewart
Panmure Gordon	020 7459 3600
Nicola Biles / Tim Spratt
Financial Dynamics	020 7831 3113

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 education: serves the public sector through professional communities in schools and other institutions, including school leaders and managers, special needs and speech therapy professionals and teachers - primarily in the UK.

 

·; Sport business: is an international provider of Business to Business information offering insight and analysis into the business of sport (for international sports federations, major event organisers, sponsoring brands and media owners); it includes a valuable niche providing analysis and professional development for the online gaming industry and its affiliate marketing partners.

 

·; 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 2010 61% (2009: 62%) of revenue came from selling content, including 21% (2009: 25%) from subscription revenue, and 39% (2009: 38%) 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 14 so far.

 

With net debt at May 2010 of only £0.5m against adjusted EBITDA* of £2.1m for the 2009 financial year, the Directors believe Electric Word is well capitalised. In addition the first half of 2010 has seen a further improvement in the Group's conversion of operating profit into cash* to 118%. In previous years the acquisition of businesses with strong growth potential but high initial working capital needs had reduced cashflow but after a clean year without acquisitions Electric Word's underlying cash generation is now being demonstrated. As a result the Group is well placed to continue its programme of investment to support further growth.

 

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.

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

 

We are pleased that Electric Word has continued its improvement in profitability* and cash generation against the prior year despite the challenging business environment. We remain reassured that the Group's mix of market sectors and revenue streams has shown both defensive quality and areas of potential growth, many of which have been invested in through 2009 and this half year whilst continuing the improvement in results.

 

The Group has improved operating margin* from a lower revenue base despite investing in areas of future opportunity, notably the consumer division. The Group has continued to improve its cash generation and saw adjusted cash generation from operating profit of over 100% for the first time (note 7) reflecting no additional working capital needs from recent acquisitions and proving the cash strength of the underlying businesses.

 

The Group's low level of gearing leaves it in an excellent position 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. It has also reaped the benefits of the cost restructurings undertaken in 2009.

 

 

(£'000)	2010 6 months	2009 6 months	CHANGE	2009 12 months
Professional education
Revenue	5,175	5,664	-9%	10,569
Adjusted EBITA*	1,024	801	28%	1,748
Margin	20%	14%		17%
Sport business
Revenue	2,420	2,162	12%	4,272
Adjusted EBITA*	364	295	23%	772
Margin	15%	14%		18%
Specialist consumer
Revenue	588	898	-35%	1,640
Adjusted EBITA*	(78)	133	-159%	368
Margin	-13%	15%		22%
Central Group costs
Adjusted EBITA*	(355)	(320)	-11%	(821)
As % of Group revenue	4%	4%		5%
Total Group
Revenue	8,183	8,724	-6%	16,481
Adjusted EBITA*	955	909	5%	2,067
Margin	12%	10%		13%
Net interest payable	(30)	(77)		(129)
Adjusted PBT*	925	832	11%	1,938

 

*Adjusted numbers, as set out in note 3, exclude amortisation and impairment of goodwill and intangible assets, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, the use of tax losses and tax credits from recognition of tax losses, and notional accounting charges. The amount for notional accounting charges encompasses the unwinding of discounts on preference shares and provisions and share based payment costs. The adjusted earnings per share number is fully diluted.

 

Appropriately for the current economic environment the Group has prioritised profit over revenue across all businesses to protect and strengthen margins. The result has been a decrease in revenue of 6% to £8.2m while profits* have grown. Compared to the same period last year margins* have increased from 10% to 12% despite continued investment in new products and areas of likely growth.

Professional education division

(£'000)	2010	2009	CHANGE
Revenue	5,175	5,664	-9%
Adjusted EBITA*	1,024	801	28%
Margin	20%	14%

 

 

The breadth of the Professional Education portfolio makes it possible to consolidate products to maintain profits and margins during periods of weaker markets. As a result profits have grown while revenue has decreased by 9% across the division.

 

The main drivers of the decrease in revenue have been weaker demand in the Incentive Plus commerce business (selling third-party products) and some consolidation and shrinkage of mature subscription titles. We expect this to continue into 2011 while new subscription sales will increasingly focus on higher-margin digital products. Professional development conferences on the other hand continue to outperform the prior year and by over 10% in this period.

 

The reduction in revenue has been more than offset however by the continued improvement in margins in this division. This has been driven by cost reductions made in 2009, by the continued removal of low margin products and by the growth and strength of online marketing channels, which is both reducing costs and improving the ROI. The division continues to look to re-invest these savings in growing its book lists and in the reconfiguration of its subscriber content.

 

It is now known that there will be severe reductions in public spending which are expected to have both a positive and a negative impact on this division. In the short-term schools' confidence to spend money on resources for both children and teacher education is likely to suffer. The Optimus and Speechmark businesses both enjoy considerable strength in areas of content that are likely to be among the best defended during the next few years: child protection, special needs, teaching improvement, child welfare and behaviour remain important priorities for schools. Nevertheless tighter school spending is likely to present challenges for this division in the second half of 2010 and 2011.

 

In the medium term however the new political environment presents real opportunities for growth. The Government's radical proposed changes in the organisation and management of schools are likely to stimulate demand for management support information and the increase in local responsibilities, combined with the reduction in funding to quangoes and Local Education Authorities (LEAs) that currently support teacher education and school management, create a significant opportunity to develop new products to support school management and improvement in the future. Combined with the development of new digital products that add more value for customers at higher margins the longer-term outlook for this division represents a considerable growth opportunity.

 

One example of this opportunity is in the Division's list of paper subscription newsletters which are expected to follow the changes experienced in its marketing channels and move increasingly online, with sales of individual titles gradually being replaced by higher-value and more comprehensive online information packages.

 

This transition was started in 2009 with the development of 14 websites across this sector and will continue into 2011 and beyond, bringing the potential to grow profits while providing an unrivalled source of management and professional development information to schools as they become increasingly independent of LEA control and support.

 

Sport business division

 

(£'000)	2010	2009	CHANGE
Revenue	2,420	2,162	12%
Adjusted EBITA*	364	295	23%
Margin	15%	14%

 

The division has again grown revenue, this period by 12% as a result of event revenues increasing 40% across both the Business of Sport and iGaming sectors. Advertising revenues are up 6%, due to timing on an iGaming directory which was published in H2 in 2009. Excluding that, advertising revenue would be down by over 5%, as expected, with 2009 boosted by the bidding for the 2016 Olympics.

 

Revenue in the TV Sports Markets niche, which tracks and analyses sports rights deals, has grown by 17% with the potential for further growth in profits and margins as the business adds increasingly high-value products and services. Profits have increased 23% compared to the same period last year and margins have remained stable at 15% (14% in 2009) with continued care and attention.

 

Whilst the various niches within this division's markets remain resilient to the economic cycles, the affiliate market of iGaming Business remains the growth sector within this division. In this period iGaming again ran its London Affiliate program attracting over 2,000 delegates and it ran an inaugural super show staged in Prague and covering both its affiliate and B2B markets across the iGaming space.

 

Specialist consumer division

 

(£'000)	2010	2009	CHANGE
Revenue	588	898	-35%
Adjusted EBITA*	(78)	133	-159%
Margin	-13%	15%

 

Revenue in this division fell by 35%, reflecting the continued impact of the restructuring of the My Child part of this division. My Child provides parents with information about their children's educational development and although £1m of unprofitable legacy paper activities were cut in 2008, some revenue continued to be earned into 2009. Excluding that impact, revenue fell by 18% which was largely as a result of the continuing transition of the sports performance business from paper subscriptions to a smaller number of more profitable online subscribers.

 

The sports performance business publishes sports science information for both competitors and coaches and remains an established and successful example of profitable online consumer publishing based on niche content with high search engine rankings.

 

This model has now been replicated in the restructured parents' business, in which the successful experiments in building traffic and selling content in 2009 have now been extended by investing 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.

 

Central costs

 

(£'000)	2010	2009	CHANGE
Adjusted EBITA*	(355)	(320)	-11%
As % of Group revenue	4%	4%
Net interest payable	(30)	(77)	61%

 

Despite the reduction in revenue the Group's central costs continue to represent only 4% of the Group's revenue. This reflects the continued review of resource levels, infrastructure efficiencies and changes at Board level.

 

As a result of the placing in August 2009 and the cash generation in the businesses net debt has been reduced from £3.7m at May 2009 to £1.4m at November 2009 and to £0.5m at May 2010. Net interest payable as a result has fallen by 61%.

 

The Group has agreed a new lease on its London property which houses three-quarters of the staff. This secures its rent for over five years at a favourable time for such reviews and provides the necessary additional space for the Group's expected expansion without over-stretching its needs.

 

Board changes

 

This half year has seen the resignation in April 2010 from the Board of Emma Rogers as she started her maternity leave. Emma headed the professional education division and ahead of departing was able to see a smooth hand-over of her divisional duties. Liz Lane who has been MD of the two Milton Keynes based businesses for most of the last two years continues but in the interim period reports direct to Julian Turner. Russell Lawson, who has headed the Education conferences for many years and through much success and growth, steps up as Interim MD of the London part of the education business.

 

Current Trading and Prospects

 

The outlook for Electric Word is both promising and exciting as the consumer division is built and developed, the education division evolves and the most profitable niches of the sport business division are built into fuller offerings with growing customer numbers and revenue streams. The Group continues to build its online competencies and this half year has seen the creation of a new web development infrastructure to take our online publishing to a higher level still.

 

The Group continues to develop these organic growth opportunities, funded by focusing on higher margin activities, and also remains alert to opportunities to take advantage of earnings-enhancing in-fill acquisitions.

Current trading is in line with the Board's expectations. The Group's focus in the first half of the year on profitability over revenue will continue into the second half, together with the ongoing investment in product development and Group infrastructure. The next few years represent an exciting time in both the Group's industry and its chosen markets and the Board expects Electric Word to continue to build from its strong current position.

 

 

Peter Rigby Chairman

Julian Turner Chief Executive

CONSOLIDATED INCOME STATEMENT

For the six months ended 31 May 2010 - unaudited

 

		Note	Six months ended 31 May  2010 £'000			Six months ended 31 May  2009 £'000		Year ended 30 November 2009 £'000
REVENUE		2	8,183			8,724		16,481
Cost of sales - direct costs			(3,369)			(3,496)		(6,434)
Cost of sales - marketing expense			(1,136)			(1,420)		(2,616)
Gross profit			3,678			3,808		7,431
Other operating expenses			(2,789)			(2,857)		(5,278)
Depreciation expense			(80)			(78)		(182)
Amortisation expense			(277)			(237)		(527)
Total administrative expenses			(3,146)			(3,172)		(5,987)
OPERATING PROFIT		2, 3	532			636		1,444
Impairment expense			(45)			(1)		(610)
Restructuring expense			-			-		(295)
Non-operating income and expense			-			-		-
Finance costs			(31)			(105)		(188)
Investment income			1			1		4
PROFIT BEFORE TAX		3		457	531		355
Taxation		4		(116)	(183)		(206)
PROFIT FOR THE PERIOD				341	348		149
Attributable to:
- Equity holders of the parent		3, 8		232	276		76
- Minority interests				109	72		73
				341	348		149
EARNINGS PER SHARE		6
Basic				0.10p	0.19p		0.05p
Diluted				0.10p	0.18p		0.04p

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 31 May 2010 - unaudited

 

 

		Note	Six months ended 31 May  2010 £'000	Six months ended 31 May  2009 £'000	Year ended 30 November 2009 £'000
Profit for the period			341	347	149
Tax taken direct to reserves		8	(46)	29	12
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD			295	376	161
Attributable to:
- Equity holders of the parent		8	186	304	88
- Minority interests			109	72	73
			295	376	161

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 31 May 2010 - unaudited

 

	Share capital £'000	Preference share capital £'000	Share premium account £'000	Other reserves (note 8) £'000	Reserve for own shares £'000	Reserve for share based payment £'000	Retained earnings £'000	Total £'000	Non- controlling interest £'000	Total equity £'000
At 30 November 2008	1,450	875	3,106	(349)	(103)	364	(17)	5,326	72	5,398
Profit for the period	-	-	-	-	-	-	276	276	72	348
Tax taken directly to equity	-	-	-	-	-	29	-	29	-	29
Total comprehensive income for the period	1,450	875	3,106	(349)	(103)	393	259	5,631	144	5,775
Share issues	27	-	27	-	-	-	-	54	-	54
Share based payments	-	-	-	-	-	36	-	36	-	36
At 31 May 2009	1,477	875	3,133	(349)	(103)	429	259	5,721	144	5,865
Profit for the period	-	-	-	-	-	-	(200)	(200)	22	(178)
Tax taken directly to equity	-	-	-	-	-	(17)	-	(17)	-	(17)
Total comprehensive income for the period	1,477	875	3,133	(349)	(103)	412	59	5,504	166	5,670
Dividend paid by subsidiary	-	-	-	-	-	-	-	-	(135)	(135)
Share issues	745	-	1,955	-	-	-	-	2,700	-	2,700
Share issue cost	-	-	(223)	-	-	-	-	(223)	-	(223)
Preference share conversion	66	(875)	355	454	-	-	-	-	-	-
Share based payment costs	-	-	-	-	-	60	-	60	-	60
At 30 November 2009	2,288	-	5,220	105	(103)	472	59	8,041	31	8,072
Profit for the period	-	-	-	-	-	-	232	232	109	341
Tax taken directly to equity	-	-	-	-	-	(46)	-	(46)	-	(46)
Total comprehensive income for the period	2,288	-	5,220	105	(103)	426	291	8,227	140	8,367
Share issues	86	-	-	-	(20)	-	-	66	-	66
Share based payments	-	-	-	-	-	68	-	68	-	68
At 31 May 2010	2,374	-	5,220	105	(123)	494	291	8,361	140	8,501

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 May 2010 - unaudited

 

	Note	31 May 2010 £'000	31 May 2009 £'000	30 November 2009 £'000
ASSETS
Non-current assets
Goodwill	9	8,256	8,810	8,301
Other intangible assets	9	1,584	2,228	1,856
Property, plant and equipment		211	286	293
Deferred tax assets		623	700	711
		10,674	12,024	11,161
Current Assets
Inventories		1,333	1,390	1,304
Trade and other receivables		2,994	2,553	3,560
Cash and cash equivalents	7	992	306	704
		5,319	4,249	5,568
TOTAL ASSETS		15,993	16,273	16,729
EQUITY AND LIABILITIES
Capital and reserves
Called up ordinary share capital		2,374	1,477	2,288
Preference share capital		-	875	-
Other reserve		-	(454)	-
Share premium account		5,220	3,133	5,220
Merger reserve		105	105	105
Reserve for own shares		(123)	(103)	(103)
Reserve for share based payments		494	429	472
Retained earnings		291	259	59
Equity attributable to equity holders of the parent	8	8,361	5,721	8,041
Minority interest in equity		140	144	31
TOTAL EQUITY		8,501	5,865	8,072
Non-current liabilities
Borrowings	7	-	1,500	1,500
Deferred tax liabilities		447	613	511
Obligations under finance leases		-	2	-
Preference shares		-	-	-
		447	2,115	2,011
Current liabilities
Borrowings	7	1,500	1,501	600
Current tax liabilities		291	397	246
Trade payables and other liabilities		2,453	2,130	2,502
Provisions		-	5	-
Obligations under finance leases		2	13	7
Deferred income		2,799	3,291	3,291
Preference shares		-	956	-
		7,045	8,293	6,646
TOTAL LIABILITIES		7,492	10,408	8,657
TOTAL EQUITY AND LIABILITIES		15,993	16,273	16,729
These financial statements were approved by the Board of Directors and are authorised for issue on 6 July 2010.

 

CONSOLIDATED CASH FLOW STATEMENT

For the period ended 31 May 2010 - unaudited

 

	Note	6 months ended 31 May  2010 £'000	6 months ended 31 May  2009 £'000	Year ended  30 November 2009 £'000
OPERATING ACTIVITIES
Operating profit for the period		532	636	1,444
Amortisation		277	237	527
Depreciation		80	78	182
Share based payment charges		146	36	96
Restructuring costs		-	-	(295)
Operating cash flows before movements in working capital		1,035	987	1,954
Change in inventories		(30)	(168)	(81)
Change in receivables		567	702	(306)
Change in payables		(619)	(1,252)	(993)
Cash flow from operating activities before interest and tax		953	269	574
Interest paid		(31)	(78)	(134)
Taxation paid		(93)	(10)	(315)
Cash inflow from operating activities		829	181	125
investing activities
Acquisition of subsidiaries, net of cash acquired		-	-	-
Deferred consideration paid	9	-	(250)	(260)
Purchase of property, plant and equipment		-	-	(111)
Purchase of intangible assets		(4)	(1)	(13)
Interest received		1	1	4
Cash outflow from investing activities		(3)	(250)	(380)
financing activities
Proceeds from issuance of ordinary shares	8	67	54	2,754
Cost of issuing new shares		-	-	(223)
Repayments of preference shares		-	-	(984)
Repayments of borrowings	7	(600)	(116)	(909)
Repayments of obligations under finance leases	7	(5)	(11)	(19)
Cash (outflow) / inflow from financing activities		(538)	(73)	619
Net increase / (decrease) in cash and cash equivalents		288	(142)	364
Cash and cash equivalents at the beginning of the period		704	340	340
Cash and cash equivalents at the end of the period	7	992	198	704

NOTES TO THE INTERIM REPORT

For the period ended 31 May 2010 - 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 2010 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 2010 and the comparative information for the six months ended 31 May 2009 are not audited by the Group's auditors. The comparative figures for the financial year ended 30 November 2009 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 2009 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 2009 except for the adoption of IFRS 8 "Operating Segments" and IAS 1 "Presentation of Financial Statements" (revised 2007).

 

IFRS 8 requires operating segments to be identified on the basis of internal reporting on the components of the Group that are regularly reviewed by the Board to allocate resources and to assess performance. In contrast, the predecessor Standard (IAS 14 "Segment Reporting") required the Group to identify two sets of segments (business and geographical), using a risks and rewards approach with the Group's internal reporting serving only as the starting point for identification of such segments. In the Group's case however the internal reporting has been consistent with how the external segments were represented so no change has been required.

 

IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result such a primary statement has been presented showing changes in each component of equity for each period presented.

 

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 2009.

 

GOING CONCERN

 

The Group has a net current liability position as at 31 May 2010. However the Group has net assets overall and 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. A significant element of the Group's net liabilities position is deferred revenue accumulated from payments received in advance, notably on subscription publishing, and on which the cost of fulfilment is significantly less than the refund exposure shown on the balance sheet as a liability.

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:

·; PE: professional education serving professional communities in schools and other institutions;

·; SB: sport business for the professional communities supporting the sport and on-line gaming industries;

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

·; 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.

 

Analysis by market sector	Six months ended 31 May 2010						Six months ended 31 May 2009
	PE	SB	SC	PLC	Total		PE	SB	SC	PLC	Total
	£'000	£'000	£'000	£'000	£'000		£'000	£'000	£'000	£'000	£'000
Revenue	5,175	2,420	588	-	8,183		5,664	2,162	898	-	8,724
Adjusted operating profit (note 3)	1,024	364	(78)	(355)	955		801	295	133	(320)	909
Amortisation of intangible assets	(215)	(1)	(52)	(9)	(277)		(171)	(15)	(51)	-	(237)
Share based payment charges	(72)	(30)	(30)	(14)	(146)		(18)	(7)	(7)	(4)	(36)
Operating profit	737	333	(160)	(378)	532		612	273	75	(324)	636
Impairment expense	-	(45)	-	-	(45)		-	(1)	-	-	(1)
Finance costs	-	-	-	(31)	(31)		-	-	-	(105)	(105)
Investment income	-	-	-	1	1		-	-	-	1	1
Profit before tax	737	288	(160)	(408)	457		612	272	74	(428)	531

 

Analysis by market sector							Year ended 30 November 2009
							PE	SB	SC	PLC	Total
							£'000	£'000	£'000	£'000	£'000
Revenue							10,569	4,272	1,640	-	16,481
Adjusted operating profit (note 3)							1,748	772	368	(821)	2,067
Amortisation of intangible assets							(396)	(14)	(109)	(8)	(527)
Share based payment charges							(49)	(19)	(19)	(9)	(96)
Operating profit							1,303	739	240	(838)	1,444
Impairment expense							(604)	(6)	-	-	(610)
Restructuring costs							(40)	(75)	(38)	(142)	(295)
Finance costs							-	-	-	(188)	(188)
Investment income							-	-	-	4	4
Profit before tax							659	658	202	(1,164)	355

 

 

Analysis by market sector	Assets				Liabilities
	Six months ended 31 May 2010	Six months ended 31 May 2009	Year ended 30 November 2009		Six months ended 31 May 2010	Six months ended 31 May 2009	Year ended 30 November 2009
	£'000	£'000	£'000		£'000	£'000	£'000
Professional education	4,462	6,146	5,290		3,123	2,316	3,518
Sport business	1,766	1,247	1,728		1,071	731	1,053
Specialist consumer	342	335	371		343	604	410
Group function	8,800	7,845	8,629		717	2,732	812
Net debt and taxation	623	700	711		2,238	4,025	2,864
	15,993	16,273	16,729		7,492	10,408	8,657

 

Analysis by market sector					Depreciation and amortisation
					Six months ended 31 May 2010	Six months ended 31 May 2009	Year ended 30 November 2009
					£'000	£'000	£'000
Professional education					242	200	426
Sport business					11	19	24
Specialist consumer					71	70	140
Group function					33	26	119
					357	315	709

 

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 of intangible assets, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, tax credits from recognition and the use of tax losses, and notional accounting charges. The amount for notional accounting charges encompasses both the unwinding of discounts on preference shares and provisions and the share based payment costs.

 

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 non-recurring gain and restructuring costs which are excluded as they are not in the normal course of trading and are not recurring.

 

	Notes	6 months ended 31 May 2010 £'000	6 months ended 31 May 2009 £'000	Year ended  30 November 2009 £'000
Operating profit for the period		532	636	1,444
Amortisation of intangible assets		277	237	527
Notional accounting charges - share based payment charges		146	36	96
Adjusting items to operating profit		423	273	623
Adjusted operating profit for the period		955	909	2,067
Depreciation		80	78	182
Adjusted earnings before interest, tax, depreciation and amortisation for the period		1,035	987	2,249
Profit before tax for the period		457	531	355
Adjusting items to operating profit		423	273	623
Impairment expense	i	45	1	610
Restructuring costs	ii	-	-	295
Notional accounting charges - unwinding of discounts		-	27	55
Adjusting items to profit before tax		468	301	1,583
Adjusted profit before tax for the period		925	832	1,938
Profit for the period attributable to equity holders of the parent		232	276	76
Adjusting items to profit before tax		468	301	1,583
Attributable tax expense on adjusting items	iii	-	-	(83)
Exclude movements on deferred tax assets and liabilities taken to income statement		(22)	(12)	(118)
Adjusting items to profit for the year		446	289	1,382
Adjusted profit for the period		678	565	1,458

 

Notes to the tables:

(i) An impairment charge to goodwill of £45,000 (31 May 2009: £1,000 and 30 November 2009 £6,000) 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 an impairment of the goodwill recognised at the acquisition date. Special Education Publishing Limited was impaired in 2009 by £604,000 reflecting the restructure of the business in the period.

 

(ii) Restructuring costs in 2010 of £50,000 relate to legal cases on My Child but net with prior year accruals, whilst in 2009 the £295,000 cost relates to three activities. This includes £140,000 in relation to the strategic review of debt, financing options and transaction costs which were not fundamentally part of the share placing and so are not included in share premium. The Group's continued product evolution resulted in product closure and redundancy costs of £80,000 and a legal case with a competitor resulted in settlement and legal costs of £75,000 being provided.

(iii) The restructuring costs were all considered to be taxable items for corporation tax and thus attributable tax has been included in the relevant periods at 28% of their value. All other adjusting items do not have a tax affect on the Group.

4 TAXATION

 

	Notes	6 months ended 31 May 2010 £'000	6 months ended 31 May 2009 £'000	Year ended  30 November 2009 £'000
Current tax:
UK corporation tax on profits of the period		144	190	359
Adjustment to prior year		(38)	-	(45)
Overseas tax suffered		32	5	10
Total current tax		138	195	324
Deferred taxation:
Origination and reversal of timing differences		(22)	(12)	(118)
Tax on profit on ordinary activities		116	183	206

 

UK corporation tax is calculated at 28% (2009: 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:

 

	6 months ended 31 May 2010		6 months ended 31 May 2009		Year ended 30 November 2009
	£'000	%	£'000	%	£'000	%
Profit before tax	457		531		355
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 28% (2009: 28%)	128	28	148	28	99	28
Effect of:
Expenses (deductible) / not deductible for tax purposes - principally (gains on option exercises) / amortisation and impairment	(65)	(14)	20	4	149	42
Recognition of tax losses for prior years	(19)	(4)	-	-	(34)	(10)
Over provision in prior year	(1)	-	-	-	(45)	(12)
Share based payments	41	9	10	2	27	7
Overseas taxation	32	7	5	1	10	3
Tax expense / effective tax rate for the period	116	25	183	35	206	58

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:

 

		6 months ended 31 May  2010	6 months ended 31 May  2009	Year ended  30 November 2009
		Number	Number	Number
Weighted average number of shares		232,461,184	146,899,051	167,932,279
Adjustment in respect of SIP shares		(1,733,767)	(1,096,794)	(859,007)
Weighted average number of shares used in basic earnings per share calculations		230,727,417	145,802,257	167,073,272
Dilutive effect of share options		2,000,827	3,216,705	1,114,970
Dilutive effect of warrants		3,781,249	6,149,167	6,313,324
Weighted average number of shares used in diluted earnings per share calculations		236,509,493	155,168,129	174,501,566

 

 

	Note	6 months ended 31 May  2010 £'000	6 months ended 31 May  2009 £'000	Year ended  30 November 2009 £'000
Basic and diluted earnings		232	276	76
Adjustment to earnings	3	446	289	1,382
Adjusted basic and diluted earnings figure		678	565	1,458
Earnings per share
- Basic earnings / (loss) per share		0.10p	0.19p	0.05p
- Diluted earnings / (loss) per share		0.10p	0.18p	0.04p
Adjusted earnings per share
- Adjusted basic earnings per share		0.29p	0.39p	0.87p
- Adjusted diluted earnings per share		0.29p	0.36p	0.84p

7 ANALYSIS OF NET DEBT

 

	At 1 December 2009 £'000	Cash flow £'000	Other non cash changes £'000	At 31 May 2010 £'000
Cash at bank and in hand	704	288	-	992
Overdraft	-	-	-	-
	704	288	-	992
Bank loans due within one year	-		(1,500)	(1,500)
Other loans due within one year	(600)	600	-	-
Finance leases due within one year	(7)	5	-	(2)
Debt due within one year	(607)	605	(1,500)	(1,502)
Bank loans due after one year	(1,500)	-	1,500	-
Other loans due after one year	-	-	-	-
Finance leases due after one year	-	-	-	-
Debt due after one year	(1,500)	-	1,500	-
Gross debt	(2,107)	605	-	(1,502)
Net debt	(1,403)	893	-	(510)

 

The Group has two types of lending facility from its bankers, with both an overdraft facility of £750,000, paying interest of 2.25% above base rate and subject to annual renewal, and a revolving credit facility. The revolving credit facility of £1,500,000 is fully drawn down, paying interest of 2.25% above base rate, and which is due to be repaid in May 2011. The Group has remained comfortably within the covenants set by the bank on this debt.

 

Other debt related to borrowings from Sussex Research Limited, a related party courtesy of it being beneficially owned by the same party as Sussex Trading Company Limited, a company which has a substantial share holding in the Group. The loan was repaid in full on 16 April 2010.

 

With no acquisition impact (high creditor positions and low cash inherited in acquisitions now diluted through), the Group has improved its cash generation from operating profits reflecting the underlying conversion in its trading entities:

 

	Note	6 months ended 31 May  2010 £'000	6 months ended 31 May  2009 £'000	Year ended  30 November 2009 £'000
Cash flow from operating activities before interest and tax		953	269	574
Remove adjusting items (non-operational, not recurring):
Loan by Employee Benefit Trust to employee		171	-	-
Adjusted cash generated by operations		1,124	269	574
Adjusted operating profit for the period	3	955	909	2,067
Percentage of adjusted operating profit converted to adjusted cash generate by operations		118%	30%	28%

8 CAPITAL AND RESERVES

 

In August 2009 the Group announced a placing of 74,482,759 ordinary shares at a price of 3.625 pence to raise £2.75m gross of costs. In September 2009 the class 'A' preference shares converted into 6,603,773 ordinary shares. No share options have been exercised in this period (31 May 2009: 2,700,000 and 30 November 2009 2,700,000).

 

Other reserves include a merger reserve of £105,000 and a reserve relating to the adjustment of the preference share capital issued (note 7).

 

The reserve for own shares relates to the Share Incentive Plan under which the Group owns 1,790,328 shares (2009: 1,218,575 shares).

 

9 ACQUISITIONS

 

There have been no acquisitions in the period.

 

10 RELATED PARTIES

 

The Board received financial advice from Trillium Partners Limited ("Trillium Partners") in the period. Trillium Partners is a specialist media advisory firm, which is 45% owned by Stephen Routledge, a non-executive director of Electric Word, and as such is a related party for the purposes of the AIM Rules. Accordingly, the Directors (other than Stephen Routledge) consider, having consulted with Panmure Gordon (UK) Limited, its nominated adviser, that the terms of the fees payable to Trillium Partners are fair and reasonable insofar as the Company's shareholders are concerned. The total fee to date for the advice and work is under £0.1 million (2009: under £0.1 million).

 

There were no other related party transactions other than those relating to Directors' remuneration in the six months ended 31 May 2010.

 

11 POST BALANCE SHEET EVENTS

 

There are no post balance sheet events to be reported.