RNS Number:3034Y
Electric Word PLC
13 February 2006
13 February 2006
Correction - This press release replaces the earlier release under RNS number
2918Y that was announced this morning at 07.00. The amendment refers to
acquisition of SportBusiness Group for the initial consideration of #2.74m.
This figure should be #2.5m.
ELECTRIC WORD PLC
PRELIMINARY RESULTS
FOR THE YEAR ENDED 30 NOVEMBER 2005
Strong Improvement In Profits and Margins
* Profit before tax and goodwill improves to #451k (#107k)
* Margin before tax and goodwill improves from 2% to 7%
* Turnover increases 13% to #6.2m (#5.5m)
* 69% of Group revenue from renewable subscriptions
* Strong balance sheet maintained
* Acquisitions of Fieldwork Online Training in June and Teaching Expertise
magazine in December 2005 continue to build education portfolio
* Acquisition of SportBusiness Group in December 2005 significantly
strengthens sports publishing division and expands customer base and
products
* Current year started well, with trading in line with Board's expectations
Julian Turner, Chief Executive commented:
"We have continued to make good progress this year, particularly in improving
our margins as reflected in the significant improvement in profitability. We
have remained focused on our Public Sector Management and Sports publishing -
areas where there are good market opportunities - and broadened our product
portfolio, both organically and through acquisitions.
"The current year has begun well and in line with our expectations. We have a
larger portfolio and a broader customer base to develop our publications,
subscriptions, databases, e-marketing and advertising."
ENDS
Enquiries:
Julian Turner, Chief Executive
Electric Word 0207 954 3470
Tim Spratt / Kim Muckle
Financial Dynamics 0207 831 3113
Extracts from Chairman's and Chief Executive's Reports
INTRODUCTION
Following 2004's move into profitability, the aim in 2005 was to build
profitability and scale as we sought opportunities to capitalise on the Group's
infrastructure. I am pleased to report that both those aims have been
accomplished, with profits before tax and goodwill increased fourfold to
#451,000.
After building profits, the second key objective in 2005 was to develop the
scale of the business through acquisition. Electric Word has an exceptionally
experienced management team, at both Board level and below, for a company of its
size. Over the six years of its existence the Group has gradually extended its
range of publishing competencies, backed in each case by robust middle
management and a scalable information management infrastructure. The Group now
has a wide range of information formats and publishing expertise to add value to
acquired businesses, with particular strengths in subscriptions marketing,
ROI-based resource management and online sales channel management.
RESULTS
Turnover in the year grew by 13% to #6.2m, driven both by additions to our
product range and growing international sales, particularly online. Our strategy
has been to build our database of customers and create a range of specialist
information products to meet their needs. The strength and quality of the
business is illustrated by the fact that in 2005 69% of our revenue came from
renewable subscriptions.
It was also encouraging that such a high proportion (45%) of our revenue growth
was turned into profit, reflected in a clear improvement in pre-tax margins
before goodwill from 2% to 7%. Over 80% of our profit improvement was from
organic growth, with the Fieldwork Online Training acquisition also contributing
to gross profits from July.
Financial summary 2005 2004
Turnover 6,234 5,516 13%
Gross profit 2,623 1,913 37%
Operating Profit before goodwill 432 100 332%
Profit before tax and goodwill 451 107 322%
Profit after tax 114 240* -53%
Operating cash flow 290 329 -12%
Cash balance 881 901 -2%
*2004 result after recognizing a deferred tax asset of #400k
The Group continued its record of good cash generation from operating activities
and after investing #270k in acquisitions finished the year once again with a
strong net cash position. Following the capital reduction agreed at last year's
AGM, the balance sheet now reflects the ongoing strength of the business and
gives us for the first time a distributable reserve. In the first instance this
has been deployed to start a Share Incentive Plan which will broaden share
ownership among all Electric Word employees; this will be continued in 2006.
While there are no plans this year to pay a dividend, creating the reserve is
the first step to what we hope will be a future progressive dividend policy.
OPERATIONAL PERFORMANCE
Public Sector Management division
2005 2004
Turnover 4,955 4,481 11%
Operating profit before goodwill 724 435 66%
Operating margin 14.6% 9.7% 50%
The Public Sector Management division supports the professional development of
managers working in schools, the health sector and local authorities. It
provides subscription newsletters, loose-leaf files, books, special reports,
online training, conferences and now a magazine.
The division's largest market is education management, which has grown rapidly
since the Group's acquisition of Optimus Publishing in 2000. Driven by a
continuous process of government reform of the education system, middle and
senior managers in schools have acquired a wide range of non-teaching
responsibilities. This has required them to develop new skills and maintain
their awareness of a constantly-evolving compliance environment. Our products
enable them to keep in touch with the information they need as well as the
lessons of their colleagues' experience in facing similar challenges in other
schools.
Profits advanced significantly in this division in 2005, with profits up 66%,
and margins increased from 10% to 15%. Profit growth was driven by the
increasing maturity of the subscription products (average marketing costs tend
to reduce as repeat business increases) and a broader range of formats to
cross-sell to existing subscribers. Book and one-off publishing revenues
increased by 32% in the year and the new online learning products also added a
higher margin business to the portfolio. One disappointment was the poor
first-half performance of the conferences business which was more affected by
the general election than had been anticipated. Nevertheless, performance picked
up in the second half and both revenues and profits advanced on the previous
year.
The division now has an inter-connected group of products with particular
strengths in the fields of the administration and delivery of professional
development, special educational needs, emotional development, child protection
and school leadership and management. These areas continue to figure prominently
in the Government's agenda for public sector reform and we can expect future
initiatives to reinforce the value of Electric Word's databases of customers and
contacts.
The future strategy for the division is geared towards making the most of its
customer database assets by continuing to improve margins and grow revenue.
Further revenue streams can be added, including those that exploit the
attraction of our customers to third-party businesses through advertising or
transaction revenues. New and existing revenue streams will be supported
additionally by fast-growing sales channels such as e-marketing and telephone
sales.
The access to market that our brands and databases bring provide a strong
rationale for further acquisitions in the education, health and local authority
sectors.
Sport Publishing division
2005 2004
Turnover 1,279 1,035 24%
Operating profit before goodwill 107 16 569%
Operating margin 8.4% 1.5% 460%
The sport publishing division provides practical, research-based information for
competing athletes and professional development for sports professionals such as
coaches, trainers and physiotherapists. These take the form of paper and online
newsletters such as Peak Performance and Sports Injury Bulletin, a very
well-visited website and a growing range of workbooks and special reports such
as Body Fuel, All-Weather Training, Master Athletes, Training for Rugby' and 101
Evaluation Tests.
Revenues in the year increased 24% to #1.3m. Originally a UK-only business, the
last two years have seen strong growth from international sales driven by the
internet as a marketing channel and by the particular strength of the Australian
market. In 2005, international sales grew by 84% and by the end of the year
accounted for 45% of turnover in this division.
The division also accelerated the profit improvement of the previous year, with
margins growing from 1.5% to 8.4%. The profit growth was the result of
broadening the product range by adding more one-off publications to cross-sell
into the database (book revenues tripled in the year) and the investment in
on-and off-line marketing channels that saw the sports science database grow to
over 250,000 contacts. High-margin online advertising revenues also started to
contribute for the first time also and can be expected to continue to grow.
Sport is a high-growth market, covering personal fitness, competitive
improvement, professional development at all levels and the commercial
management of sports rights assets. We see long-term UK and international growth
in each of these sports areas, and with the acquisition of SportBusiness Group
(SBG), Electric Word is now in a position to take advantage of both the personal
and business aspects of a thriving market.
The SBG acquisition was completed on 31 December 2005 for an initial
consideration of #2.5m and a deferred element of up to a further #250k. SBG is
the leading publisher serving the community of international sports rights
owners, media owners and sponsoring brands. It publishes SportBusiness
International magazine, i-Gaming Business magazine, the analytical newsletter
TV Sports Markets and a series of high-value industry reports such as The
Business of Sports Marketing, Maximising the Value of Hospitality and Broadband:
The Opportunities for Sport.
The acquisition creates value for the Group through the exchange of competencies
between the companies and is expected to be immediately earnings enhancing.
SBG products will benefit from Electric Word's strengths in subscriptions,
e-marketing and conference management. At the same time SBG's strength in
advertising sales creates a new competency for Electric Word.
The financial structure of the acquisition is also attractive to Electric Word
shareholders. SBG was acquired for a combination of shares at 8p and preference
shares converting at 10p. In addition, Electric Word has the option to redeem up
to #625k of the preference shares on payment of a 2% interest coupon. Finally,
as a result of the acquisition Stewart Newton, founder of Newton Investment
Management, holds 18.75m shares in Electric Word plc, making him the Company's
largest shareholder and an important and enthusiastic strategic investor for the
future.
CENTRAL GROUP COSTS
Central Group costs not recharged to profit centres amounted to #399k in 2005
(#315k in 2004). In addition there was a net interest credit in the year of
#19k (#7k in 2004).
OUTLOOK
2006 has started well. Current trading is in line the Board's expectations in
all areas of the business.
The acquisitions made in both divisions over the past year have strengthened
Electric Word's position to continue to build additional revenues streams from a
solid platform of products.
SBG is a good example of how the Group can benefit from complementary strengths
in an adjoining market, and will also help Electric Word to create more value
from its Group cost base. The business of sport is a high growth market and the
addition of SBG's titles to our own portfolio of sports information products
creates an excellent platform for growth, particularly in the run up to the 2012
London Olympics when we expect to benefit from the increasing interest in sport
and its commercial development.
We will continue to look for value-enhancing acquisitions in 2006 and see many
opportunities to balance acquired and organic growth into the future. The
Group's growth strategy for 2006 continues to retain focus on developing both
divisions, building on the Group's existing platform through earnings-enhancing
acquisitions, building product development and expanding our customer base.
Electric Word plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 November 2005
Notes 2005 2005 2004 2004
# # # #
TURNOVER (including acquisitions
#151,621) 2 6,234,499 5,516,307
COST OF SALES
Marketing costs (1,727,251) (1,736,994)
Other cost of sales (1,884,240) (1,866,148)
GROSS PROFIT (including
acquisitions #119,176) 2,623,008 1,913,165
Operating expenses (2,190,768) (1,813,037)
Amortisation of goodwill (286,498) (266,164)
Total administrative expenses (2,477,266) (2,079,201)
OPERATING PROFIT/(LOSS)
(including acquisitions #16,188) 145,742 (166,036)
Interest receivable 21,020 6,763
Interest payable (1,914) -
PROFIT/(LOSS) ON ORDINARY 164,848 (159,273)
ACTIVITIES BEFORE TAXATION
Taxation 3 (50,756) 399,580
PROFIT ON ORDINARY ACTIVITIES 114,092 240,307
AFTER TAXATION
EARNINGS PER SHARE
Basic 4 0.12p 0.25p
Diluted 4 0.10p 0.21p
The operating profit for the year arises from the group's continuing operations.
No separate statement of Total Recognised Gains and Losses has been presented as
all such gains and losses have been dealt with in the profit and loss account.
Electric Word plc
CONSOLIDATED BALANCE SHEET
30 November 2005
Group Group
2005 2004
# #
FIXED ASSETS
Intangible assets 2,037,287 1,895,975
Tangible assets 181,466 29,814
2,218,753 1,925,789
CURRENT ASSETS
Stocks 53,117 104,956
Debtors due within one year 1,530,399 860,813
Debtors due after more than one year 292,651 501,762
Cash at bank and in hand 880,677 901,425
2,756,844 2,368,956
CREDITORS: Amounts falling due within one year
Deferred revenue (2,708,560) (2,494,992)
Other creditors (912,780) (802,781)
(3,621,340) (3,297,773)
NET CURRENT LIABILITIES (864,496) (928,817)
TOTAL ASSETS LESS CURRENT LIABILITIES 1,354,257 996,972
CREDITORS: Amounts falling due after more than one year (105,402) -
PROVISIONS FOR LIABILITIES AND CHARGES (158,000) -
NET ASSETS 1,090,855 996,972
CAPITAL AND RESERVES
Called up share capital 951,139 950,139
Share premium account 3,000 2,118,805
Merger reserve 105,011 105,011
ESOP reserve (24,209) -
Profit and loss account 55,914 (2,176,983)
SHAREHOLDERS' FUNDS 1,090,855 996,972
Electric Word plc
COMPANY BALANCE SHEET
30 November 2005
Company Company
2005 2004
# #
FIXED ASSETS
Intangible assets 2,037,287 1,895,975
Tangible assets 181,466 29,814
Investments 35,066 35,066
2,253,819 1,960,855
CURRENT ASSETS
Stocks 53,117 104,956
Debtors due within one year 1,530,399 860,813
Debtors due after more than one year 292,651 501,762
Cash at bank and in hand 880,677 901,425
2,756,844 2,368,956
CREDITORS: Amounts falling due within one year
Deferred revenue (2,708,560) (2,494,992)
Other creditors (941,117) (831,118)
(3,649,677) (3,326,110)
NET CURRENT LIABILITIES (892,833) (957,154)
TOTAL ASSETS LESS CURRENT LIABILITIES 1,360,986 1,003,701
CREDITORS: Amounts falling due after more than one
year (105,402) -
PROVISIONS FOR LIABILITIES AND CHARGES (158,000) -
NET ASSETS 1,097,584 1,003,701
CAPITAL AND RESERVES
Called up share capital 951,139 950,139
Share premium account 3,000 2,118,805
ESOP reserve (24,209) -
Profit and loss account 167,654 (2,065,243)
SHAREHOLDERS' FUNDS 1,097,584 1,003,701
Electric Word plc
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 November 2005
Notes 2005 2004
# #
Cash flow from operating activities 5a 289,517 329,470
Returns on investments and servicing of finance 5b 19,106 6,595
Taxation (420) -
Capital expenditure and financial investment 5b (30,873) (15,553)
Cash inflow before acquisitions and financing 277,330 320,512
Acquisitions 5b (269,806) -
Cash inflow before financing 7,524 320,512
Financing 5b (28,272) (17,000)
(DECREASE)/INCREASE IN CASH IN THE YEAR (20,748) 303,512
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2005 2004
# #
(Decrease)/increase in cash in the year (20,748) 303,512
Cash outflow from decrease in lease financing 6,945 -
Cash to repurchase loan stock - 40,000
Change in net debt resulting from cash flows (13,803) 343,512
New finance leases (153,000) -
MOVEMENT IN NET FUNDS IN YEAR (166,803) 343,512
NET FUNDS AT 1 DECEMBER 2004 901,425 557,913
NET FUNDS AT 30 NOVEMBER 2005 734,622 901,425
Electric Word plc
NOTES TO THE PRELIMINARY ANNOUNCEMENT
for the year ended 30 November 2005
1 This announcement was approved by the Directors on the
10th February 2006. The preliminary results for the year ended 30th November
2005 are unaudited. The financial information set out in the announcement does
not constitute the Company's statutory accounts for the years ended 30th
November 2005 or 30th November 2004. The financial information for the year
ended 30th November 2004 is derived from the statutory accounts for that year,
which have been delivered to the Registrar of Companies. The auditors reported
on those accounts and their report was unqualified.
2 TURNOVER
The group's turnover and profit/(loss) on ordinary activities before taxation
were all derived from its principal activity. Sales were made in the following
geographical markets:
2005 2004
# #
United Kingdom 5,573,094 5,207,017
Other 661,405 309,290
6,234,499 5,516,307
Profit/(loss) on
ordinary
Turnover activities before Net assets
taxation
Analysis 2005 2004 2005 2004 2005 2004
by class
of # # # # # #
business
Public
sector
management 4,954,962 4,481,376 442,190 173,613 1,451,542 1,145,519
Sport 1,279,537 1,034,931 102,432 10,846 (125,253) (214,560)
Group
overheads - - (379,774) (343,732) (235,434) 66,013
6,234,499 5,516,307 164,848 (159,273) 1,090,855 996,972
3 TAXATION 2005 2004
# #
Current tax:
UK corporation tax on profits of the period 2,617 420
Total current tax 2,617 420
Deferred taxation:
Origination and reversal of timing differences 48,139 (400,000)
Total deferred tax 48,139 (400,000)
Tax on loss on ordinary activities 50,756 (399,580)
Factors affecting tax charge for the period:
The tax assessed for the period is lower than the standard rate of
corporation tax in the UK. The differences are explained below:
Profit/(loss) on ordinary activities before tax 164,848 (159,273)
Profit/(loss) on ordinary activities multiplied by the standard rate of 49,454 (47,782)
corporation tax in the UK of 30% (2004: 30%)
Effects of:
Expenses not deductible for tax purposes 14,279 4,066
Amortisation of intangible fixed asset 79,531 79,849
Capital allowances in excess of deprecation 5,767 4,333
(Utilisation of)/unutilised tax losses (142,725) (38,436)
Small companies relief (3,689) (1,610)
Current tax charge for the period 2,617 420
There are accumulated losses of #1.78 million (2004: #2.22 million) which,
subject to agreement with the Inland Revenue, are available to offset future
profits of the same trade.
A deferred tax asset of #546,623 (2004: #594,762) has been recognised on the
balance sheet representing losses which are expected to reverse in the
foreseeable future.
4 EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share is based on the following.
2005 2004
Weighted Weighted
average Earnings average Earnings
Earnings number per share Earnings number per share
# of shares p # of shares p
Basic earnings per 114,092 95,055,772 0.12p 240,307 94,913,854 0.25p
share
Diluted earnings per
share
Basic earnings per 114,092 95,055,772 0.12p 240,307 94,913,854 0.25p
share
Dilutive effect of - 11,435,522 (0.01)p - 9,885,481 (0.02)p
share options
Dilutive effect of - 9,755,302 (0.01)p - 9,720,680 (0.02)p
warrants
Dilutive effect of
share incentive plan - - - - - -
114,092 116,246,596 0.10p 240,307 114,520,015 0.21p
CASH FLOWS 2005 2004
5 # #
a Reconciliation of operating loss to net cash inflow from operating
activities
Operating profit/(loss) 145,742 (166,036)
Amortisation 286,494 266,164
Depreciation 32,221 34,575
(Increase)/decrease in stocks 51,839 (9,299)
Increase in debtors (508,614) (178,544)
Increase in creditors 122,717 382,610
Increase in provision 158,000 -
Adjustment re ESOP 1,118 -
Net cash inflow from operating activities 289,517 329,470
b Analysis of cash flows for headings netted in the cash flow 2005 2004
statement
# #
Returns on investments and servicing of finance
Interest received 21,020 6,595
Interest element of finance lease rental payments (1,914) -
Net cash inflow from returns on investments and servicing of 19,106 6,595
finance
Capital expenditure and financial investment
Purchase of tangible fixed assets (30,873) (23,413)
Disposal of intangible fixed assets - 7,860
Net cash outflow from capital expenditure and financial
investment (30,873) (15,553)
Acquisitions
Purchase of trade and business (269,806) -
Net cash outflow from acquisitions (269,806) -
2005 2004
# #
Financing
Issue of share capital 4,000 23,000
Repayment of loan stock - (40,000)
Capital element of finance lease rental payments (6,945) -
Contribution of ESOP (25,327) -
Net cash inflow from financing (28,272) (17,000)
c Analysis of funds At Other At 30
1 December non cash November
2004 Cash flow changes 2005
# # # #
Cash at bank and in hand 901,425 (20,748) - 880,677
Finance leases - 6,945 (153,000) (146,055)
901,425 (13,803) (153,000) 734,622
6 Copies of this announcement are available from the Company's
registered office: 33-41 Dallington Street, London EC1V 0BB
This information is provided by RNS
The company news service from the London Stock Exchange
END
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