21st Feb 2008 07:01
Electric Word PLC21 February 2008 21 February 2008 ELECTRIC WORD PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2007 Electric Word, the specialist information publisher, today announces preliminaryresults for the year to 30 November 2007. SOLID BASE FOR STRONG ORGANIC GROWTH POTENTIAL • Fourth successive year of strong financial growth • Turnover up 26% to £13.5m (2006: £10.7m) • Adjusted profit before tax* up 41% to £1.4m (2006: £1.0m) • Adjusted earnings per share* up 36% to 0.87p (2006: 0.64p) • Adjusted profit before tax* margin up 11% to 10% (2006: 9%) • 33% of Group revenue from renewal subscriptions • Two significant acquisitions, in new education sectors, enhance future growth • Current year started well, with trading in line with Board's expectations * excludes tax, goodwill amortisation, exceptional costs, minority interests and notional accounting charges Julian Turner, Chief Executive of Electric Word, commented: "At the end of a year of focussed, productive work Electric Word has improvedthe profits and cash flows from its continuing businesses and used them toinvest in both enhancing their growth prospects for the future and acquiring newbusinesses of real potential. Our significant level of subscription-basedrevenue and good cash generation gives us a firm financial base from which todevelop these opportunities and the business is well positioned to drive futuregrowth in earnings per share. "The current year has started well and in line with the Board's expectations andin 2008 we are anticipating continued organic growth, the full profit benefit ofthe 2007 Speechmark acquisition and further revenue growth from MyChild, withprofits building into 2009. We are confident we will be able to take advantageof further synergies and new opportunities across all the businesses to make2008 another year of strong growth for the Group. " ENDS Enquiries: Julian Turner, Chief Executive Electric Word 0207 954 3470 Helen Thomas / Tim Spratt Financial Dynamics 0207 831 3113 Notes to Editors Electric Word plc delivers specialist information in a wide range of formats tocommunities in two market sectors, targeting growing niche areas with strongdefensive qualities: • Education: serves professional communities in schools and other institutions, including school leaders and managers, special needs and speech therapy professionals, teachers and parents, accounting for 65% of group revenue. • Sport: covers the communities of amateur and elite sports competitors, governing bodies, media bidding for sports content, venues, sponsoring brands and the online gaming industry, accounting for 35% of group revenue. The range of products and services offered to these communities includesubscription newsletters, magazines, websites, events, books, special reportsand bespoke research and publishing. In 2007 60% of revenue came from sellingcontent, including 33% from subscription revenue, and 40% came from sellingaccess to these communities. EXTRACTS FROM CHAIRMAN'S AND CHIEF EXECUTIVE'S REPORTS INTRODUCTION 2007 marks Electric Word's fourth successive year of strong improvement inpre-tax profits and margins and in turnover. As previously, profit growth wasachieved from a combination of organic development and acquisitions,highlighting the Group's capacity to create value through its well-organisedpublishing competencies in highly specialist markets in the education and sportssectors. The progress made across the business in 2007, combined with twosignificant acquisitions, leaves the Group in an excellent position tocapitalise on the exciting opportunities for organic growth in both thecontinuing operations and the new businesses added during the year. The year started with a reorganisation of the company structure and managementteams and a renewed focus on the most important and valuable customercommunities and businesses. This process, which included cutting out somesub-scale products and niches, was successfully completed in 2007 at the sametime as new products were launched and new businesses acquired in the areas ofgreatest and most sustainable growth potential. 2007 has also seen significant progress in building the Group's infrastructure.New enlarged premises in Milton Keynes now house both the expanding IncentivePlus catalogue business and the newly-acquired Speechmark Publishing, creatingan immediate efficiency benefit in 2008. In July 2007 the Board appointedQuentin Brocklebank as Finance Director, whose arrival has significantlystrengthened the senior management team, enabling Natascha Lloyd to be appointedElectric Word's first HR Director and other senior managers to focus on leadingand developing the business units. Looking ahead, the outlook appears as positive as 2007 has been successful.Electric Word's business model is robust. Revenue is driven by establishedcompetencies in direct marketing (81% of revenues) and sales (19%), with abusiness culture rooted in measured improvements in the return on resourcesinvested. The Group's market sectors are ones in which information remains ofhigh value and enduring interest. Sport continues to grow in importance forparticipants, media and governments around the world. The management of ourschools, the quality of our teachers' professional education and children'sbehaviour and learning remain long-term political priorities. In entering theparents' market with the acquisition of a majority stake in MyChild magazine,Electric Word is addressing a specialist information market with potential forsignificant growth and scale. The growth potential in these markets and in the acquired businesses inparticular, creates a platform for continued growth over several years to come.The Board would like to thank the staff in all Electric Word's businesses, aswell as our external partners, for their contribution to the results achieved in2007 and the opportunities they have created for the future. FINANCIAL REVIEW 2007 has seen a further year of strong growth for the Group with a 26% increasein turnover to £13.5m (2006: £10.7m) and an increase in adjusted profit beforetax* of 41% to £1.35m (2006: £0.96m). This growth was driven by a combination ofmargin improvement and the benefit of a full year's result from the 2006Incentive Plus acquisition of £204,000, which, if excluded from these results,still leaves comparable year on year results up by £189,000. With 33% of all revenues coming from renewable subscriptions, cash generationhas been strong, with operating cash flows at 101% of adjusted pre-tax profits.Cash, along with the strong balance sheet position at the end of 2006, supportedthe greater leverage achieved in 2007 that enabled Electric Word to makeinvestments of £3.7m in acquisitions during the year without dilution at currentshare prices. As a result, despite the fact that at least one of thosebusinesses is at an early stage of development, adjusted earnings per share roseby 36% to 0.87p in 2007 (2006: 0.67p). Financial summary (£000) 2007 2006 ChangeTurnover 13,508 10,712 +26%Gross Profit 6,167 4,919 +25%Adjusted EBITDA* 1,522 1,088 +40%Adjusted profit before tax* 1,353 960 +41%Profit before tax 186 196 -5%Adjusted earnings per share* 0.87p 0.64p +36%Earnings per share (diluted) 0.02 0.16 Operating cash flow 1,365 511 +167%Cash balance 1,116 1,475 -24% *Adjusted numbers exclude tax £150,648 (2006: £(72,611) credit), goodwillamortisation £938,806 (2006: £704,003), exceptional costs £102,684 (2006: £nil),minority interests £6,097 (2006: £27,037) and notional accounting charges£125,757 (2006: £59,181). The amount for notional accounting charges encompassesthe unwinding of discounts on preference shares £69,656 (2006: £19,375) andprovisions £6,367 (2006: £6,666) and FRS20 share based payment costs £49,734(2006: £33,140). The adjusted earnings per share measure is fully diluted. Allreferences to profit in this announcement refer to the adjusted basis as definedabove unless otherwise stated. Interest paid increased significantly in the period following the negotiation ofa £1.5 million revolving credit facility, which was fully drawn down to pay forthe Speechmark Publishing Limited acquisition. This deal represented asignificant change for the business, being the first acquisition by the Groupthat was fully debt funded. In total the Group entered into acquisitions in 2007 with a total value in theregion of £3.7m, of which £2.6m was disbursed in the year. Along with £255,000related to deferred or contingent consideration on prior year deals thisamounted to a cash spend of £2.8m. It should be noted that none of this spendwas financed by the issue of shares. It was instead financed by the revolvingcredit facility, a £0.5m short term loan and cash from working capital. OPERATIONAL PERFORMANCE 2007 has been another year of development and progress for Electric Word withstrong profit growth achieved in both the education (+64%) and sport (+28%)sectors, following a sharper focus on profits while continuing to invest infuture growth. The revenue mix has continued to build, with long-establishedsubscriptions revenues (33% of the total) now matched by event, book and reportsales also reaching a significant scale. The advances made in 2006 in thedevelopment of new tiers of revenue from selling access to our valuablespecialist communities have been consolidated and, with a full year of commercerevenues from Incentive Plus' catalogue of other suppliers' education products,these 'sell-side' revenues now account for 40% of the total. Education £000 2007 2006 ChangeTurnover 8,678 6,580 32%Adjusted EBITA* 1,276 776 64%Profit margin 15% 12% 25% Electric Word's Education business has been significantly strengthened in 2007.The 64% increase in operating profits was driven by improved margins in OptimusProfessional Publishing and a full year of trading in Incentive Plus, acquiredin May 2006. Following the acquisition of a majority stake in MyChild, the Groupnow enjoys a strong position in both the school and parent ends of the UKeducation market. Optimus The professional communities that Optimus has served, for example heads, bursarsand middle managers responsible for managing the curriculum and continuingprofessional development, have proliferated over the last decade with thedevolution of management responsibilities to schools and new initiatives fromsuccessive education ministers. 2007 saw some peripheral consolidation, withOptimus exiting some sub-scale niches and under-performing products andreplacing these revenue streams with new products launched into the corecommunities around school leadership, management, special needs and teaching andlearning, each supported by increasingly well-developed e-marketing channels.With the new books front list enhanced also by the CKP imprint (specialising inlearning, teaching and thinking skills) acquired in 2006, books revenues jumped46%. Optimus conferences also achieved a significant increase in revenues, withdelegate sales up 16% on 13% fewer events. Optimus added a new format to its portfolio by taking over the publishing ofthree magazines owned by Special Education Publishing Ltd in September 2007,with a contractual option to purchase them for a fixed consideration of £875,000or 6.6 million shares. Special Children, Teaching & Learning and PE & SportToday have a strong subscriber base in primary schools and, by occupying two ofthe most important niches, offer opportunities to develop advertising revenuesin the Optimus business for the first time. Overall, these developments in 2007 maintained revenues and improved profits by17%. The pruning of some less profitable activities was balanced by investmentsin new senior roles around education media sales, online marketing and bookspublishing, creating a platform for further organic growth in the future. Incentive Plus The social and emotional aspects of learning (SEAL) are a key part of theGovernment's current and future agenda, encompassing both behaviour andemotional and intellectual development. Incentive Plus, which Electric Wordacquired in May 2006, brings together materials that teachers and otherprofessionals working with young people can use in this work. Following asuccessful first 12 months as part of Electric Word, on the back of asignificant increase in marketing investment, Incentive Plus relocated to largerpremises in Milton Keynes in August 2007. With a full year of Incentive Plus sales, education commerce revenues inElectric Word increased by 138% in 2007, representing a 17% increase on theequivalent period in 2006. Profits increased fivefold, despite the costs anddisruption of relocation. The acquisition of Incentive Plus brought to the Group a competency ingenerating commerce revenue from the sale of third-party products and itslogistical support. Electric Word sees the combination of owned content andcommerce as strategically important: content to attract and retain communitiesof customers and commerce to generate revenue from access to them (in this caseby owning a distribution channel). This strategy also underpins Electric Word'sentry to the parents' side of the education market led by the acquisition of amajority stake in MyChild. MyChild Parental impact on children's educational attainment is another key influence onstrategic Government thinking. Parents make a difference by what they do athome, through the emotional preparedness of their children and by the nature oftheir relationship with schools. MyChild magazine, in which Electric Wordacquired a 10% stake in August 2007 and a further 40.1% stake in November 2007,aims to support parents with their children's educational development both inand out of school. MyChild has over 26,000 parent subscribers and is currently adding around 1,000new subscribers per month through a range of different sales channels. Thecirculation growth now supports advertising, which since the year end has beenstrengthened by the re-launch of the www.mychild.co.uk website. Catalogue ande-commerce revenues are also being introduced this year on the back of theimproved Incentive Plus infrastructure which will give parents the opportunityto buy products to support their children's educational and emotionaldevelopment. Electric Word has developed a strong position in the education market over manyyears. In 2007 it has given that position more focus and more depth while alsoopening itself an important new market among parental audiences. Strategically,the Group's leading position at both the school and parent ends of the UKeducation sector presents unique opportunities for organic growth over the longterm. Sport Sector £000 2007 2006 ChangeTurnover 4,829 4,133 17%Adjusted EBITA* 940 736 28%Profit margin 19% 18% 5% Electric Word's sport sector underwent a dramatic transformation last yearfollowing the acquisition of SportBusiness Group in 2005. Progress has beencontinued in 2007 in both the consumer (P2P Publishing) and thebusiness-to-business divisions, with profit growth of 28% on a 17% revenueincrease. P2P Publishing In 2007 profits grew by 32% as the business continued to migrate online and takeadvantage of higher online margins. Costs were also reduced by closing the smallAustralian office and although Australia remains an important market for thebusiness, we identified that it no longer needed to be managed and marketedlocally. At the same time a substantial investment was made in rebuilding thesuccessful Peak Performance website with a greater community focus and a widerrange of digital content. This is part of a strategy to further increase contentsales from the site and increase the potential monetisation of the audiencethrough advertising and e-commerce. SportBusiness Group In 2006, the first year of its ownership of SportBusiness Group (SBG), bespokerevenues were particularly important as Electric Word had the benefit of asubstantial contract to publish the official magazine of the Asian Games. It isa mark of the significant progress the business has achieved with revenue growthacross SBG by 26% in 2007 despite that contract finishing at the end of thefirst quarter. Sales of both content and access to the SBG community contributed to growth.Subscription revenues increased 30% in the period as SportBusiness Internationalmagazine continued to attract a growing subscriber base of senior executives.Its premium position and strong brand have also attracted high-qualityadvertisers keen to influence this target audience, including a growing numberof cities bidding to host major sports events - a trend that is set to continuewith the increasingly important role of sport in geopolitics and inwardinvestment. At the start of 2007 i-Gaming Business magazine faced some uncertainty in themarket as a result of compliance changes in the USA. However revenues actuallyincreased substantially in 2007, with advertising strong enough to support thelaunch of a second magazine and the opportunity for i-Gaming to take advantageof Electric Word's established event management competency to launch a series ofonline gaming marketing exhibitions. The result has been that business-to-business sport publishing increased profitsby 23% and pushed overall sport sector margins up again to 19% (18%), exceedingwhat was expected to be a high point in 2006. Looking ahead, the outlook ispromising, with a buoyant international market and significant potential forfurther growth. OPERATING REVIEW In 2007 the resource at the centre of the Group was enhanced with theappointment of Quentin Brocklebank as Finance Director and the creation of asenior HR role. Central costs not directly attributable to businesses increasedto £835k (£541k), or 6.2% of Group revenues (5.1%). As anticipated in last year's review, we moved ahead with relocating theIncentive Plus business into larger premises in Milton Keynes. By doublingwarehouse capacity, we are now in a position to handle considerable futuregrowth, while fully off-setting the higher short term costs by in-sourcingstorage and distribution for other parts of the group. The increased office areaenabled us to seamlessly relocate the Smallwood and the Speechmark acquisitions.Co-location has yielded further integration benefits for these businesses, bothin terms of cost-savings and management control. Enhanced IT and e-commercesystems were also successfully implemented at Incentive Plus, which weanticipate rolling out to the Speechmark business in 2008. This should yieldfurther efficiencies, and reflects our philosophy of consolidating systemswhenever possible across the Group. The launch of a catalogue and e-commercerevenue stream around the MyChild Family Learning brand is also being led fromMilton Keynes, demonstrating our commitment to sharing Group competencies as away of opening up new avenues for growth. In December 2006 we reorganised the Group's corporate structure, creatingseparate subsidiaries for each of our five business units. By the end of theyear, the acquisitions of Speechmark and MyChild had expanded this to seven. Thereorganisation was mirrored in terms of management responsibilities, with morecontrol being given to our emerging market-facing managers. This has proved tobe very successful, with the emergence of dynamic and collaborative teams withinthe separate business units. At the same time, we strengthened the provision ofgroup-wide central services in finance, HR, IT and fulfilment. The appointmentsof a Finance Director and HR Director have under-pinned this investment,increasing our senior team capacity. Group wide services are not onlycost-effective, but they ensure that systems, procedures and reporting systemsare consistent and robust. OUTLOOK At the end of a year of focussed, productive work Electric Word has improved theprofits and cash flows from its continuing businesses and used them to invest inboth enhancing their growth prospects for the future and adding new businessesof real potential. Our significant level of subscription based revenue and goodcash generation gives us a solid base from which to develop these opportunitiesand the business is well positioned to drive future growth. The current year has started well and in line with the Board's expectations, Weare anticipating continued organic growth, the full profit benefit of the 2007Speechmark acquisition and further revenue growth from MyChild, with profitsbuilding into 2009. We are confident we will be able to take advantage offurther synergies across the sector businesses and that 2008 will be anotheryear of strong growth for the Group. Consolidated Profit and Loss Account 30 November 2007 Continuing Acquisitions 2007 2006 (restated) Note £ £ £ £ TURNOVER 2 13,036,493 471,068 13,507,561 10,712,433 Cost of Sales (4,741,751) (193,246) (4,934,997) (3,633,291) Marketing (2,321,251) (84,044) (2,405,295) (2,160,353) --------- --------- --------- --------- GROSS PROFIT 5,973,491 193,778 6,167,269 4,918,789 Operating expenses (4,571,293) (264,850) (4,836,143) (3,981,420) Amortisation of goodwill (938,806) - (938,806) (704,003) -------- -------- -------- -------- Total administrative expenses (5,510,099) (264,850) (5,774,949) (4,685,423) --------- --------- --------- --------- OPERATING PROFIT / (LOSS) 463,392 (71,072) 392,320 233,366 Exceptional costs 3 (102,684) - (102,684) - Interest receivable 4 32,784 - 32,784 28,003 Interest payable 4 (136,452) (211) (136,663) (64,962) --------- --------- --------- --------- PROFIT / (LOSS) ON ORDINARY 2, 5 257,040 (71,283) 185,757 196,407ACTIVITIES BEFORE TAXATION Taxation 7 (156,727) 6,079 (150,648) 72,611 --------- --------- --------- --------- PROFIT / (LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 100,313 (65,204) 35,109 269,018 Minority interests (6,097) - (6,097) (27,037) --------- --------- --------- --------- PROFIT / (LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION AND 94,216 (65,204) 29,012 241,981MINORITY INTERESTS --------- --------- --------- --------- EARNINGS PER SHARE Basic 8 0.02p 0.19p --------- --------- Diluted 8 0.02p 0.16p --------- --------- The operating profit for the year arises from the Group's continuing operations. Consolidated statement of recognised gains and losses 30 November 2007 Group Group 2007 2006 Notes £ £ Profit for the year 35,109 269,018 Prior period adjustments 10 (160,644) - --------- --------- Total gains and losses recognised since the last annual report (125,535) 269,018 --------- --------- Attributable to: - Equity holders of the parent (131,632) 241,981 - Minority interests 6,097 27,037 --------- --------- Consolidated Balance Sheet 30 November 2007 Group Group 2007 2006 (restated) Notes £ £ FIXED ASSETS Intangible assets 9 10,870,300 6,122,743 Tangible assets 418,310 313,900 Investments - 90,000 --------- --------- 11,288,610 6,526,643 --------- --------- CURRENT ASSETS Stocks 860,260 284,462 Debtors due within one year 3,811,478 2,618,336 Debtors due after more than one year 385,226 578,097 Cash at bank and in hand 1,116,199 1,475,468 --------- --------- 6,173,163 4,956,363 --------- --------- CREDITORS: Amounts falling due within one year Deferred revenue (5,055,165) (3,079,905) Other creditors (3,658,430) (1,948,442) --------- --------- (8,713,595) (5,028,347) --------- --------- NET CURRENT (LIABILITIES) (2,540,432) (71,984) --------- --------- TOTAL ASSETS LESS CURRENT LIABILITIES 8,748,178 6,454,659 CREDITORS: Amounts falling due after more than (2,705,140) (1,489,302)one year PROVISIONS FOR LIABILITIES (1,261,492) (330,592) --------- --------- NET ASSETS 4,781,546 4,634,765 --------- --------- CAPITAL AND RESERVES Called up share capital 10 1,423,644 1,381,442 Share premium account 10 3,038,644 2,977,933 Merger reserve 10 105,011 105,011 Reserve for own shares 10 (103,376) (67,497) Reserve for share based payments 10 104,182 54,448 Profit and loss account 10 185,403 156,391 --------- --------- SHAREHOLDERS' FUNDS 4,753,508 4,607,728 Minority Interest 28,038 27,037 --------- --------- 4,781,546 4,634,765 --------- --------- Consolidated Cash Flow Statement 30 November 2007 2007 2006 Notes £ £ Net cash flow from operating 11a 1,365,000 511,087 activities Returns on investments and servicing 11b (27,856) (11,769) of finance Taxation (4,080) (84,582) Capital expenditure and financial 11b (233,573) (226,815) investment --------- --------- Cash inflow before acquisitions and 1,099,491 187,921 financing Acquisitions 11b (2,812,425) (1,955,138) --------- --------- Cash outflow before financing (1,712,934) (1,767,217) Financing 11b 1,353,665 2,362,008 --------- --------- (DECREASE)/INCREASE IN CASH IN THE (359,269) 594,791 YEAR --------- --------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT) / FUNDS 2007 2006 £ £ (Decrease)/increase in cash in the (359,269) 594,791 year Cash outflow from movement in lease 41,987 37,439 financing Cash inflow from increase in loans (1,329,531) (650,000) --------- --------- MOVEMENTS IN NET FUNDS IN THE YEAR (1,646,813) (17,770) NET FUNDS AT 1 DECEMBER 2006 716,852 734,622 --------- --------- NET (DEBT) / FUNDS AT 30 NOVEMBER 2007 11c (929,961) 716,852 --------- --------- Notes to the Consolidated Financial Statements For the year ended 30 November 2007 1 BASIS OF ACCOUNTING The announcement was approved by the Board of directors on 20 February 2008. Thepreliminary results for the year ended 30 November 2007 are unaudited. Thefinancial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 30 November 2007 or 30 November2006. The financial information for the year ended 30 November 2006 is derivedfrom the statutory accounts for that year, which have been delivered to theRegistrar of Companies. The auditors reported on those accounts and their reportwas unqualified. Accounting policies remain consistent with those used in thefinancial statements for the year ended 30 November 2006 except as disclosedbelow. The financial statements have been prepared under the historical cost conventionand in accordance with applicable accounting standards. One change from theprior year's policies is the adoption of 'FRS20 - Accounting for Share-BasedPayments', the impact of which is a cost of £49,734 (2006: £19,140, net of thereversal of a £14,000 charge previously recognised under "UITF 17 - Employeeshare schemes"). In addition a charge of £21,308 was posted to the profit andloss account at 30 November 2005 to restate the brought forward position. Asecond change is the adoption of "UITF 25 - National Insurance contributions onshare option gains", the impact of which has been to accrue for £120,196 againstthe profit and loss account at 30 November 2005 and post against this accrual acost of £30,240 in the year following an exercise of warrants. 2 TURNOVER AND SEGMENTAL ANALYSIS The Group's turnover and profit on ordinary activities before taxation were allderived from its principal activity. An analysis of sales by destination in thefollowing geographical markets is as follows: 2007 2006 £ £ United Kingdom 10,618,421 8,434,816 Rest of Europe 773,067 381,107 Rest of the World 2,116,073 1,896,510 --------- --------- 13,507,561 10,712,433 --------- --------- Profit on ordinary Analysis by class of activities before taxation business Turnover and minority interests Net assets 2007 2006 2007 2006 2007 2006 (restated) (restated) £ £ £ £ £ £ Public Sector 8,678,152 6,579,833 683,899 335,277 2,030,501 1,893,585 Sport Sector 4,829,409 4,132,600 385,617 472,467 3,288,979 3,189,033 Group overheads - - (883,759) (611,337) (537,934) (447,853) --------- --------- --------- --------- --------- --------- 13,507,561 10,712,433 185,757 196,407 4,781,546 4,634,765 --------- --------- --------- --------- --------- --------- 3 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 management responsibilities and arestructure of the businesses into four subsidiaries matching the Group's majorbusiness units. The costs associated with this included some redundancy andlegal and financial assistance. These were all considered to be allowableexpenses for corporation tax and thus have been treated as reducing the Group'scharge in the year at 30% of their value. Notes to the Consolidated Financial Statements - continued For the year ended 30 November 2007 4 INTEREST RECEIVABLE AND PAYABLE Receivable 2007 2006 £ £ Bank interest 32,784 28,003 --------- --------- Payable 2007 2006 £ £ Bank loans and overdrafts 56,306 36,440 Finance lease interest 4,334 2,481 Unwinding of discount on preference shares and provisions 76,023 26,041 --------- --------- 136,663 64,962 --------- --------- 5 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2007 2006 (restated) £ £ Profit on ordinary activities before taxation is stated after charging: Depreciation and amounts written off tangible fixed assets - owned assets 107,678 62,185 - leased assets 33,453 45,225 Amortisation of intangible fixed assets 938,806 704,003 Operating lease rentals: Land and buildings 133,740 91,200 Share based payment costs 49,734 33,140 Loss on foreign exchange 20,845 12,005 --------- --------- Amounts payable to Baker Tilly or Baker Tilly UK Audit LLP and their associatesin respect of both audit and non-audit services are as follows: 2007 2006 £ £ Fees payable to the company's auditor for the audit of the 37,500 35,000 company's annual accounts Fees payable to the company's auditor and its associates for other services: - the audit of the company's subsidiaries pursuant to 22,500 18,000 legislation - other services relating to taxation 25,000 57,550 - services relating to corporate finance transactions involving the company or its subsidiaries 25,000 19,000 - other services 14,000 32,317 --------- --------- Notes to the Consolidated Financial Statements - continued For the year ended 30 November 2007 6 EMPLOYEES 2007 2006 No No The average monthly number of persons (including directors) employed by the Group during the year was - Sales and marketing 30 29 - Content and production 30 33 - Administration and management 47 36 --------- --------- 107 98 --------- --------- 2007 2006 (restated) £ £ Staff costs for the above persons: - Wages and salaries 3,022,057 2,682,217 - Social security costs 352,647 283,512 - Pension costs 34,535 5,564 - Equity-settled share-based payments and related costs 49,734 33,140 --------- --------- 3,458,973 3,004,433 --------- --------- 7 TAXATION 2007 2006 £ £ Current tax: UK corporation tax on profits of the period 915 110,063 --------- --------- Total current tax 915 110,063 --------- --------- Deferred taxation: Effect of decreased tax rate on opening assets 48,326 - Origination and reversal of timing differences 101,407 (182,674) --------- --------- 149,733 (182,674) --------- --------- Tax on profit on ordinary activities 150,648 (72,611) --------- --------- Notes to the Consolidated Financial Statements - continued For the year ended 30 November 2007 7 TAXATION (continued) Factors affecting tax charge for the period 2007 2006 (restated) £ £ The tax assessed for the period differs from the standard rate of corporation tax in the UK. The differences are explained below: Profit on ordinary activities before tax 185, 757 196,407 --------- --------- Profit on ordinary activities multiplies by the standard rate of corporation tax in the UK of 30% (2006 - 30%) 55,727 58,922 Effect of: Expenses not deductible for tax purposes 34,869 87,115 Amortisation of intangible fixed asset 264,414 213,047 Capital allowances in arrears / (excess) of depreciation (6,667) (33,080) Share based payments 14,920 5,742 Tax relief on share options and warrants exercised (109,191) - Other timing differences (14,310) - Utilisation of tax losses (239,931) (214,372) Small companies relief (2,050) (7,311) Over provision in prior year 3,134 - --------- --------- Current tax charge for the period 915 110,063 --------- --------- There are accumulated losses of £12.7 million (2006: £10.3 million) which,subject to agreement with the HM Revenue & Customs, are available to offsetfuture profits of the same trade. A deferred tax asset of £730,623 (2006:£729,297) has been recognised on the balance sheet representing losses which areexpected to be utilised in the foreseeable future. 8 EARNINGS PER ORDINARY SHARE The calculation of earnings per ordinary share is based on the following: Weighted 2007 Weighted 2006 average Earnings average Earnings Earnings number of per share Earnings number of per share shares shares (restated) (restated) £ p £ p Earnings per share 29,012 140,982,634 0.02p 241,981 126,251,152 0.19p Adjustment in respect of SIP Shares - (1,228,046) 0.00p - (992,783) 0.00p --------- --------- --------- --------- --------- --------- Basic earnings per 29,012 139,754,588 0.02p 241,981 125,258,369 0.19p share Dilutive effect of share options - 7,790,729 0.00p - 14,066,599 (0.02p) Dilutive effect of - 8,602,869 0.00p - 10,089,713 (0.01p) warrants --------- ---------- --------- --------- ---------- --------- Diluted earnings per 29,012 156,148,186 0.02p 241,981 149,414,681 0.16p share --------- ---------- --------- --------- ---------- --------- Notes to the Consolidated Financial Statements - continued For the year ended 30 November 2007 9 INTANGIBLE FIXED ASSETS Goodwill Magazines Total £ £ £ Cost 1 December 2006 7,821,042 50,000 7,871,042 Additions 5,686,363 - 5,686,363 --------- --------- --------- 30 November 2007 13,507,405 50,000 13,557,405 --------- --------- --------- Amortisation 1 December 2006 1,698,299 50,000 1,748,299 Charged in the year 938,806 - 938,806 --------- --------- --------- 30 November 2007 2,637,105 50,000 2,687,105 --------- --------- --------- Net book value 30 November 2007 10,870,300 - 10,870,300 --------- ---------- --------- 30 November 2006 6,122,743 - 6,122,743 --------- ---------- --------- The additions to the Group in the year relate to four current year acquisitionsas detailed below and £246,032 on prior year acquisitions, relating to fairvalue adjustments. The current year additions to the Group comprise:Acquisition Percentage of Goodwill Consideration Consideration issued share arising on paid payable in capital acquisition 2008 purchased £ £ £ ArkSports Limited 100% 144,324 144,626 -Smallwood Publishing 100% 180,054 189,717 12,500Limited Speechmark Publishing 100% 1,985,878 1,464,656 654,125Limited MyChild Limited 50.1% 3,130,075 609,134 512,500 --------- --------- --------- 5,440,331 2,408,133 1,179,125 --------- --------- --------- The consideration payable in 2008 is deferred except for that on SmallwoodPublishing Limited where the maximum payable is £75,000. Notes to the Consolidated Financial Statements - continued For the year ended 30 November 2007 10 CAPITAL AND RESERVES Reserve Reserve Profit and Share Merger for Loss Share premium reserve for own account Total Share Capital shares Based Payments GROUP £ £ £ £ £ £ £ 30 November 2006 as previously stated 1,381,442 2,977,933 105,011 (53,497) - 317,035 4,727,924Prior year adjustments* - - - (14,000) 54,448 (160,644) (120,196) --------- --------- --------- --------- --------- --------- ---------1 December 2006 as restated 1,381,442 2,977,933 105,011 (67,497) 54,448 156,391 4,607,728Share issues 42,202 60,711 - - - - 102,913 Share issue - - - - - - - costs Purchase of - - - (35,879) - - (35,879) shares Share based payment costs - - - - 49,734 - 49,734 Profit for - - - - - 29,012 29,012 the year --------- --------- --------- --------- --------- --------- ---------30 November 2007 1,423,644 3,038,644 105,011 (103,376) 104,182 185,403 4,753,508 --------- --------- --------- --------- --------- ---------- --------- * One prior period adjustment relates to the adoption of 'FRS20 - Accounting forShare-Based Payments'. The impact on 2006 is a reduction in profits of £19,140,net of the reversal of a £14,000 charge previously recognised under 'UITF 17 -Employee share schemes'. In addition a charge of £21,308 was posted to thebrought forward balances at 30 November 2005 to restate that balance. A secondadjustment is the adoption of "UITF 25 - National Insurance contributions onshare option gains" which has accrued £120,196 against the profit and lossaccount at 30 November 2005. 11 CASH FLOWS a Reconciliation of operating profit to net cash inflow from operatingactivities 2007 2006 (restated) £ £ Operating profit 392,320 233,366 Exceptional costs (102,684) - Amortisation 938,806 704,003 Depreciation 141,131 107,410 Decrease in stocks (15,688) (90,086) Increase in debtors (597,809) (626,481) Increase in creditors 559,190 149,735 Movement in share based payment reserve 49,734 33,140 --------- --------- Net cash inflow from operating activities 1,365,000 511,087 --------- --------- b Analysis of cash flows for headings netted in the cash flow statement 2007 2006 £ £ Returns on investments and servicing of finance Interest received 32,784 28,003 Bank interest paid (56,306) (37,291) Interest element of finance lease rental payments (4,334) (2,481) --------- --------- Net cash outflow from returns on investments and servicing of (27,856) (11,769) finance --------- --------- Notes to the Consolidated Financial Statements - continued For the year ended 30 November 2007 11 CASH FLOWS (continued) b Analysis of cash flows for headings netted in the cash flow statement(continued) 2007 2006 £ £ Returns on investments and servicing of finance Interest received 32,784 28,003 Bank interest paid (56,306) (37,291) Interest element of finance lease rental payments (4,334) (2,481) --------- --------- Net cash outflow from returns on investments and servicing of (27,856) (11,769) finance --------- --------- Capital expenditure and financial investment Purchase of tangible fixed assets (233,573) (226,815) --------- --------- Acquisitions Purchase of subsidiary undertakings (2,498,673) (2,130,930)Purchase of unincorporated businesses - (86,624) Payment of deferred / contingent consideration on (254,592) - acquisitions (Bank overdraft) / cash acquired with subsidiary undertakings (59,160) 262,416 --------- --------- Net cash outflow from acquisitions (2,812,425) (1,955,138) --------- --------- Financing Issue of share capital 102,000 1,900,000 Share issue costs - (107,265) Cash inflow from long term bank loan 1,500,000 750,000 Repayment of long term loans (170,469) (100,000) Capital element of finance lease rental payments (41,987) (37,439) Purchase of own shares (35,879) (43,288) --------- --------- Net cash inflow from financing 1,353,665 2,362,008 --------- --------- c Analysis of funds At 1 Other At 30 December non-cash November 2006 Cash flow charges 2007 £ £ £ £ Cash at bank and in hand 1,475,468 (359,269) - 1,116,199 --------- --------- --------- --------- Cash 1,475,468 (359,269) - 1,116,199 --------- --------- --------- --------- Loans due within one year (150,000) 170,469 (200,911) (180,442) Finance leases due within one (38,463) 41,987 (41,923) (38,399) year --------- --------- --------- --------- Debt due within one year (188,463) 212,456 (242,834) (218,841) --------- --------- --------- --------- Loans due after one year (500,000) (1,500,000) 200,911 (1,799,089)Finance leases due after one (70,153) - 41,923 (28,230) year --------- --------- --------- --------- Debt due after one year (570,153) (1,500,000) 242,834 (1,827,319) --------- --------- --------- --------- Net funds / (debt) 716,852 (1,646,813) - (929,961) --------- --------- --------- --------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ELE.L