21st Aug 2006 07:01
Electric Word PLC21 August 2006 21 August 2006 ELECTRIC WORD PLC Interim results to 31 May 2006 171% PROFIT IMPROVEMENT REFLECTS STRONG ACQUISITIVE GROWTH & ORGANIC MARGIN IMPROVEMENT Electric Word plc is a specialist information business operating in two markets:sport and the public sector. The company serves niche communities within each ofthese sectors with a wide range of information products, including paper andelectronic newsletters, magazines, websites, books, loose-leaf files, researchreports, conferences, online training, management information software andbespoke research and consultancy. RESULTS HIGHLIGHTS • Profit before tax (exc goodwill) up 171% to £313k (£116k) • Organic profit growth of 66% • Pre-tax margins (exc goodwill) up from 4% to 7% • Turnover up 59% to £4.5m (£2.9m) • Two major acquisitions, part-funded with debt • Positive net cash • EPS before tax and goodwill more increases by 130% • Trading in line with Board expectations Julian Turner, Chief Executive commented: "The Group has made strong progress, reflected in both the rise in profits andimprovement in margins. Organic growth is being supported by cross-sellingproducts between businesses, the introduction of ancillary products and onlinesales. Recent acquisitions are integrating well and are meeting ourexpectations. Our progress this year has taken us another step forward and putus in good stead for the next phase in the Group's development." The Group is performing in line with our expectations and we anticipatecontinued growth during the rest of the year, supported by external factorsbenefiting our educational and sports markets." ENDS Enquiries: Julian Turner, Chief ExecutiveElectric Word 0207 954 3470 Kim Muckle/Tim SprattFinancial Dynamics 0207 831 3113 EXTRACTS FROM CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENTS These strong interim results have been achieved at an exciting point in theGroup's six-year history. The first half of the year has seen two substantialacquisitions that have had a significant impact on the scale and nature of theGroup's business. It is therefore especially encouraging to be able to reportthat in this period of successful expansion the profit and margin performance ofthe underlying business has also continued to advance. Profit before tax and goodwill rose 171% to £313k, with pre-tax margins beforegoodwill improving from 4% to 7%. Margin improvements in the continuing businesssupported organic profit growth of 66% on last year, with the remainder fromacquisitions. Turnover grew by 59%, driven by the new acquisitions (47%) andorganic product development (12%). The Board set out the Group's strategic objectives this year in our AnnualReport. They are to build margins in our existing business and to identifyvalue-enhancing acquisitions and we're pleased to report that the progress hasbeen good in both areas. We aimed to build margins within our existing market sectors by developing moreproducts to sell-in to our existing customer databases and by extending oure-marketing channels and other online revenue opportunities. This has beenachieved with the further development of non-subscription publishing activities- which have shown revenue growth of 83% and improved margins as the publishinglist starts to gain scale. The increase in revenues sourced from online channelshas also improved margins. In some niches, online revenues are approaching 50%and the average across the Group is now up to 10%. Online marketing and digitalproducts are set to be key drivers of future growth throughout the Group. The second strand of growth has been through acquisitions, which have integratedwell. These results include five months of SportBusiness Group trading, onemonth from Incentive Plus and five months of investment in the embryonicTeaching Expertise magazine and website. Together, the acquisitions added profitbefore goodwill of £122k at a margin of 9%. Incentive Plus profits are stronglyweighted towards the first quarter (which was prior to the acquisition) so itspositive impact on earnings will not be felt until 2007. Nevertheless, earningsper share (fully diluted, before tax and goodwill) for the Group still improved130% from 0.10p to 0.23p per share. The EPS growth has also been aided by part-financing the two major acquisitionswith debt, thus reducing the dilution to shareholders. Combined with deferredpayment to vendors, this has introduced a long-term creditor and provision itemsto the balance sheet. Mixed financing has been an objective of the Board forseveral years and has only now become possible through the Group's establishedprofitability and strong balance sheet. Overall the acquisitions have helped push the Group's net asset value up from£1m to £4.4m. Operating cashflow was negative in the first half as theopportunities presented by the new businesses created, as expected, anadditional working capital requirement. The impact of this is expected to betemporary and the Group ends the period with over £1m in cash and in a strongposition to expand further. Operational performance Sport sector 6 months ended 6 months ended %increase 31 May 2006 31 May 2005 £ £ Turnover 1,878,383 621,009 202%Operating Profit 309,510 63,825 385%Pre- tax margin before goodwill 16.5% 10.3% The sport sector now embraces both Sports Performance (serving athletes andcoaches) and Sport Business (sports events, media and marketing). Turnover hastripled and margins have improved from 10.3% to 16.5%, both driven largely bythe SBG acquisition. 2006 has been a particularly strong year for our newSportBusiness Group, with strong growth in i-Gaming Business advertisingrevenues, a contract publishing project for the Asian Games and the addition,using the Group's existing events infrastructure, of a new, high-marginprofessional development conference. The continuing Sports Performance businesshas also performed strongly, with online advertising revenues achieving asignificant scale and margins building on a growing back-list of one-offpublications. Public sector 6 months ended 6 months ended %increase 31 May 2006 31 May 2005 £ £ Turnover 2,658,063 2,239,669 19%Operating Profit 281,150 231,284 22%Pre- tax margin before goodwill 10.6% 10.3% The continuing growth in the public sector business has built on last year'sadvances with a further improvement in profitability and first-half margins fromthe existing business rising from 10.3% to 13.6%, with the overall margin edgingup to 10.6% after losses from Incentive Plus and investment in TeachingExpertise. This organic margin improvement has been driven by sales growth ineducation management book publishing (up 55%) and lower marketing costs as theback-list builds scale. Another significant development this year has been theemergence of an online marketing channel in education of the kind that has beenso important in driving the sports business over the last two years. Schoolshave thus far been quicker to adopt new information technologies in theclassroom than in the school office but this is now changing, driven partly bynew Government requirements for the online presentation of managementinformation. The emerging online sales channel is potentially valuable also for drivinggrowth in the new Incentive Plus acquisition. The integration of Incentive Plushas begun well and some of the anticipated opportunities to add value to thebusiness are beginning to emerge - in particular the application of the Group'sdirect marketing expertise and the ability to deepen the marketing investment,which should influence results from 2007. Shortly after the acquisition of Incentive Plus, the Group also completed theacquisition of CKP, the thinking skills specialist publisher founded by ElectricWord Director Chris Kington. This will add further to the product developmentpipeline as CKP brings a strong future publishing list as well as the full-timecommitment of its founder. Current trading and prospects With such a positive start to the year and emerging opportunities in each partof the business the Directors are pleased to report that trading remains ontarget to achieve the ambitious profit growth that the Board has set itself. TheGroup's current trading, in both sectors is performing in line with ourexpectations. The outlook for the sport sector remains positive, with emerging productdevelopment opportunities in SportBusiness Group and the continued migration ofthe Sports Performance business online. The outlook for the public sector business remains healthy. Investment inhigh-value products, which will drive future growth, is made possible by marginimprovement on mature products. The Group has a strong position in areas ofemotional development and higher order learning skills both of which are centralto new government policies. ENDS ElectricWord plc GROUP PROFIT AND LOSS ACCOUNT for the period ended 31 May 2006 6 months Year 6 months ended 31 May 2006 ended ended (unaudited) 31 May 30 November Continuing 2005 2005 operations Acquisitions Total (unaudited) (audited) £ £ £ £ £ TURNOVER 3,200,087 1,336,361 4,536,448 2,860,678 6,234,499 ----------------------------------------------------------------------------------------------------- COST OF SALESMarketing/sales costs (878,044) (115,387) (993,431) (911,303) (1,727,251)Other cost of sales (918,909) (500,506) (1,419,415) (867,361) (1,884,240) ----------------------------------------------------------------------------------------------------- (1,796,953) (615,893) (2,412,846) (1,778,664) (3,611,491) ----------------------------------------------------------------------------------------------------- GROSS PROFIT 1,403,134 720,468 2,123,602 1,082,014 2,623,008 Other operating expenses (1,226,586) (591,895) (1,818,481) (977,072) (2,190,768)Amortisation of goodwill (153,418) (154,936) (308,354) (133,080) (286,498) ----------------------------------------------------------------------------------------------------- TOTAL ADMINISTRATIVE EXPENSES (1,380,004) (746,831) (2,126,835) (1,110,152) (2,477,266) ----------------------------------------------------------------------------------------------------- OPERATING (LOSS)/PROFIT 23,130 (26,363) (3,233) (28,138) 145,742 ----------------------------------------------------------------------------------------------------- Interest receivable 13,858 10,562 21,020Interest payable (5,909) - (1,914) ----------------------------------------------------------------------------------------------------- PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 4,716 (17,576) 164,848 Taxation (Note 2) 72,005 (24,949) (50,756) ----------------------------------------------------------------------------------------------------- PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 76,721 (42,525) 114,092 Minority interests (24,122) - ------------------------------------------------------------------------------------------------------- PROFIT/(LOSS) ON ORDINARY ACTIVITIES FOR THE FINANCIAL YEAR 52,599 (42,525) 114,092 ------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE Basic (Note 4) 0.05p (0.04p) 0.12p ------------------------------------------------------------------------------------------------------ Diluted (Note 4) 0.04p (0.04p) 0.10p ------------------------------------------------------------------------------------------------------ ElectricWord plc GROUP BALANCE SHEET at 31 May 2006 31 May 31 May 30 November 2006 2005 2005 (unaudited) (unaudited) (audited) £ £ £ FIXED ASSETSIntangible assets 6,460,236 1,762,895 2,037,287Tangible assets 210,308 25,609 181,466Investments 90,000 - - -------------------------------------------------------------------------------- 6,760,544 1,788,504 2,218,753 -------------------------------------------------------------------------------- CURRENT ASSETSStocks 191,344 84,435 53,117Debtors due within one year 2,312,282 1,561,698 1,530,399Debtors due after more than one year 350,389 - 292,651Cash at bank and in hand 1,033,899 918,364 880,677 -------------------------------------------------------------------------------- 3,887,914 2,564,497 2,756,844 -------------------------------------------------------------------------------- CREDITORS: Amounts falling due withinone yearDeferred revenue (2,806,670) (2,675,043) (2,708,560)Other creditors (1,316,272) (721,511) (912,780) -------------------------------------------------------------------------------- (4,122,942) (3,396,554) (3,621,340) -------------------------------------------------------------------------------- NET CURRENT LIABILITIES (235,028) (832,057) (864,496) -------------------------------------------------------------------------------- TOTAL ASSETS LESS CURRENT LIABILITIES 6,525,516 956,447 1,354,257 CREDITORS: amounts falling due after more than one year (1,713,099) - (105,402) (Note 5)PROVISIONS FOR LIABILITIES AND CHARGES (368,736) - (158,000) -------------------------------------------------------------------------------- NET ASSETS 4,443,681 956,447 1,090,855 -------------------------------------------------------------------------------- CAPITAL AND RESERVESCalled up share capital 1,368,942 950,639 951,139Share premium account 2,877,933 2,120,305 3,000Merger reserve 105,011 105,011 105,011ESOP reserve (24,209) - (24,209)Profit and loss account 108,513 (2,219,508) 55,914 -------------------------------------------------------------------------------- EQUITY SHAREHOLDERS' FUNDS 4,436,190 956,447 1,090,855 Minority interests 7,491 - - -------------------------------------------------------------------------------- TOTAL CAPITAL EMPLOYED 4,443,681 956,447 1,090,855 -------------------------------------------------------------------------------- ElectricWord plcGROUP CASH FLOW STATEMENTfor the period ended 31 May 2006 6 months 6 months Year ended ended ended 31 May 31 May 30 November 2006 2005 2005 (unaudited) (unaudited) (audited) £ £ £ CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (Note 6a) (395,259) 17,504 289,517 Returns on investments and servicing of finance 7,949 10,562 19,106 Taxation (11,650) - (420) Capital expenditure and financial investment (64,234) (11,127) (30,873) ------------------------------------------------------------------------------------------------------------ CASH (OUTFLOW)/INFLOW BEFORE ACQUISITIONS AND FINANCING (463,194) 16,939 277,330 Acquisitions (2,013,657) - (269,806) ------------------------------------------------------------------------------------------------------------ CASH (OUTFLOW)/INFLOW BEFORE FINANCING (2,476,851) 16,939 7,254 Financing 2,630,073 - (28,272) ------------------------------------------------------------------------------------------------------------ INCREASE/(DECREASE) IN CASH IN THE PERIOD 153,222 16,939 (20,748) (Note 6c)------------------------------------------------------------------------------------------------------------ ElectricWord plc GROUP CASH FLOW STATEMENT for the period ended 31 May 2006 1 PRESENTATION OF INTERIM RESULTS This interim report was approved by the Directors on xx August 2006. Theresults for both the current and the comparative half year have not beenaudited, but were the subject of an independent review carried out by thecompany's auditors, Baker Tilly. Their review confirmed that the figures wereprepared using accounting policies and practices consistent with those adoptedin the 2005 annual report and those that will be adopted for the 2006 annualreport. The audited results for the year ended 30 November 2005 are an abridgedversion of the company's report and financial statements which have been filedwith the Registrar of Companies and on which the auditors gave an unqualifiedreport. The financial information contained in this interim report does notconstitute statutory accounts as defined by Section 240 of the Companies Act1985. All shareholders will receive a copy of this interim report, which canalso be obtained from the company's registered office at 33-41 DallingtonStreet, London, EC1V OBB. 2 TAXATION The entire tax provision relates to the recognition of deferred tax assets inrespect of losses as follows: Deferred tax £ 1 December 2005 546,623 Transfer from profit and loss account 72,005 -------------------------------------------------------------------- 30 May 2006 618,628 -------------------------------------------------------------------- 3 DIVIDENDS The directors do not recommend the payment of a dividend. 4 EARNINGS PER SHARE Basic and diluted earnings per share is 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 2006 113,262,580 (Diluted : 137,369,163)Period ended 31 May 2005 95,026,766 (Diluted ; 95,026,766)Year ended 30 November 2005 95,055,772 (Diluted : 116,246,596) ElectricWord plcGROUP CASH FLOW STATEMENTfor the period ended 31 May 2006 5 CREDITORS: Amounts falling due 6 months 6 months Year after more than one year ended ended ended 30 31 May 31 May November 2006 2005 2005 £ £ £ Bank loan 600,000 - - Obligations under finance 85,474 - 105,402 leases Other loans 127,000 - - Preference shares 900,625 - - ------------------------------------------------------------------------------------------- 1,713,099 - 105,402 ------------------------------------------------------------------------------------------- 6 CASH FLOWS 6 months 6 months Year ended ended ended 30 31 May 31 May November 2006 2005 2005 £ £ £ a Reconciliation of operating loss to net cash inflow from operating activities Operating (loss)/profit (3,233) (28,138) 145,742 Amortisation 308,354 133,080 286,498 Depreciation 57,297 15,332 32,221 (Increase)/decrease in stocks (19,650) 20,521 51,839 Increase in debtors (46,714) (222,072) (508,614) (Decrease)/increase in creditors (691,313) 98,781 122,713 Increase in provision - - 158,000 Adjustment re ESOP - - 1,118 --------------------------------------------------------------------------------------------------- Net cash (outflow)/inflow from operating activities (395,259) 17,504 289,517 --------------------------------------------------------------------------------------------------- b Reconciliation of net cashflow to movement in 6 months 6 months Year net funds ended ended ended 30 31 May 31 May November 2006 2005 2005 £ £ £ Increase/(decrease) in cash in the period 153,222 16,939 (20,748) Cash (inflow)/outflow from (increase)/decrease (730,072) - 6,945 in debt and lease financing ------------------------------------------------------------------------------------------------------ Change in net debt resulting from cash flows (576,850) 16,939 (13,803) New finance leases - - (153,000) Loans acquired with subsidiary (127,000) - - ------------------------------------------------------------------------------------------------------ Movement in net funds in year (703,850) 16,939 (166,803) Net funds at beginning of period 734,622 901,425 901,425 ------------------------------------------------------------------------------------------------------ Net funds at end of period 30,772 918,364 734,622 ------------------------------------------------------------------------------------------------------ c Analysis of funds At Other At 30 1 December non cash May 2005 Cash flow changes 2006 £ £ £ £ Cash at bank and in hand 880,677 153,222 - 1,033,899 Finance leases (146,055) 19,928 - (126,127) Debt due within one year - (150,000) - (150,000) Debt due after one year - (600,000) (127,000) (727,000) ------------------------------------------------------------------------------------------------------ 734,622 (576,850) (127,000) 30,772 ------------------------------------------------------------------------------------------------------ ElectricWord plcGROUP CASH FLOW STATEMENTfor the period ended 31 May 2006 7 RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS Share Profit Share premium Merger ESOP and loss capital account reserve reserve account Total £ £ £ £ £ £ At 1 December 2005 951,139 3,000 105,011 (24,209) 55,914 1,090,855 Profit attributable - - - - 52,599 52,599 to members of the holding company Issue of shares 417,803 - - - - 417,803 Premium on allotment during period - 2,982,198 - - - 2,982,198 Share issue costs - (107,265) - - - (107,265) -------------------------------------------------------------------------------------------------- At 31 May 2006 1,368,942 2,877,933 105,011 (24,209) 108,513 4,436,190 -------------------------------------------------------------------------------------------------- 8 ACQUISITIONS On 31 December 2005 the Group acquired 100% of the issued share capital of DMWSL370 Limited for a consideration of up to £2.74 million including a contingentperformance related consideration of up to £250,000 payable in cash. Thebalance of the consideration comprised 18,750,000 ordinary shares allotted on 31December 2005 and 987,500 preference shares. On 28 April 2006 the Group acquired 100% of the issued share capital of Incentive Plus Limited and Incentive Publishing Limited for a consideration of £2.05 million payable in cash. On 28 April 2006 23,030,303 ordinary shares in the capital of the Company were issued at a price of 8.25p per share. As a result of the acquisitions in the period goodwill of £4,731,303 has been recognised and is being amortised over 10 years. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ELE.L