RNS Number:7255Y
Electric Word PLC
17 July 2002
Electric Word Plc
Interim Results
CHAIRMAN'S INTERIM STATEMENT
HIGHLIGHTS FOR 6 MONTHS TO 31 MAY 2002
• Turnover for half year up 90% to £1,060,022
• Cash receipts up 112% £1,442,639
• Gross profit up to £332,483
• Operating losses before goodwill amortisation halved to £150,657
• Group has been trading cash-positively for over a year
• £129,862 cash positive in the half year
• Total subscribers up to 20,618 (14,593 at the end of May 2001)
• Over £1m of revenue deferred to future periods (up 168% from £452,634)
• Conferences up from six to 14 per year
• Current trading maintaining strong performance in the year to date
• Increased investment in research & development of new products planned for
second half to take advantage of market opportunities
We are pleased to present the interim results for Electric Word plc for the six
months ending 31 May 2002.
The strong performance reported in the results for the year ending November 2001
has been continued into the first half of the current year. The group has now
been cash positive for over a year and, with existing products expected to
continue to generate cash in the future, the group is in a position to make a
significant investment in developing new products and revenue streams,
particularly from the second half of this year.
GROUP OVERVIEW
Electric Word plc is a provider of professional development and regulatory
information, particularly for public sector managers. It operates in three key
sectors: education management, local government funding and sports health,
publishing 13 specialist newsletters as well as conferences and books. The
business's core competencies are in subscriptions direct marketing and event
management, led by an exceptionally experienced board in this field.
Business model
The business model is based around the three key principles of building
renewable revenues, creating valuable content for niche markets that can be
employed across different publishing formats, and maximising database value
through cross-selling and intelligent direct marketing. This approach typically
involves building a body of subscribers around a newsletter, which creates
long-term stable revenue, and then offering those customers additional related
products and services to increase the average spend.
As a result of the focus on subscription customers, only 2% of revenues were
derived from advertising and sponsorship, as opposed to 76% from renewable
subscriptions, 5% from sales of non-subscription publications, 12% from
conference delegate fees and 5% from consulting and publishing services.
It is important to note that the group's conservative accounting policies mean
that, while marketing expenses are written off over the course of the marketing
campaign at the start of a subscriber's life, cash received for subscriptions is
not recognised as revenue immediately but spread over the full term of the
subscription. As a result, the group has accumulated over £1m of deferred
subscription revenue and profits lag considerably behind cash. The cash received
from subscriptions paid in advance can then be reinvested in winning further new
customers, developing new products and acquisitions to increase earnings in the
future.
Priorities in 2002
Last year the company focused successfully on building the number of customers
for its existing products. This growth has continued into the current year to
the point where 11 of the company's 13 titles are cash positive and the company
is once more looking to expand its number of niche newsletters by developing and
market-testing a range of new launches. Equally, the conference business has
grown from six events in 2001 to a schedule of 14 in the current year.
Financial highlights
The result of this continued investment in new subscribers has been an increase
in turnover for the half year of 90% to £1,060,022, following last year's
increase of 114% to £557,389. The pre-tax loss of £220,470 compares to a loss of
£385,208 in the same period last year. The loss before amortisation of goodwill
of £150,657 is half the loss of £314,995 recorded at the interim stage in 2001.
This reduction, combined with the increase in gross profits to £332,483
(£26,254), demonstrates the group's steady progress towards profitability.
DIVISIONS AND CURRENT TRADING
Peak Performance Sports Science Publishing
Peak Performance is the most mature division within the group, and yet revenues
in the first half of this year increased by 40% year-on-year. Much of this
growth has come from Sports Injury Bulletin (SIB), the post-qualification
professional education newsletter for sports doctors and therapists. However,
Peak Performance, the research newsletter for athletes and coaches, has also
grown revenues, despite losing some subscribers to SIB, its higher-priced, more
niche sister title.
The Peak Performance division attracts and retains readers by converting sports
science research into practical advice for athletes, coaches and therapists.
Retention is also greatly aided by the fact that 85% of subscribers pay by
direct debit or other continuous payment methods.
Optimus Professional Publishing
As in the second half of last year, the strongest growth performance has been
achieved by Optimus, the group's professional publishing division. Optimus
focuses on providing professional development, regulatory and management
information.
Strong demand in public sector
The division's biggest market is in education, where widespread management
reforms and a growing number of compliance and regulatory issues have created a
strong demand for information to support managers in schools. Since the
acquisition of four Optimus titles in May 2000, five new newsletters have been
launched and a further two acquired, including Lottery Monitor, the leading
source of information for local government about the policies and procedures
governing the distribution of National Lottery funding.
Growth from increased marketing and new launches
Regulation and professional education are growth industries, and in the first
half of this year demand has remained high. The return on marketing investment
has been such that marketing expenditure has again been increased, with the
focus on building subscribers to existing titles. However in the second quarter
two new education management subscription products have been successfully
market-tested for launch in September 2002 and a further programme of
researching and testing new newsletters in similar markets is now underway.
Increasing customer value
In addition, the first contributions are now being made by sales of the
education management books list acquired last year from The Stationery Office.
These books complement the newsletters and, along with the growing number of
education conferences (see below), have helped to increase the average value of
each subscriber. Average annual revenue per subscriber has increased
year-on-year by 46% to £121 from £82 in May 2001.
Events Division
The company has built its conference business around the high-quality annual
events gained as part of the acquisition of Lottery Monitor Ltd in August 2000.
Since then, the number of Lottery funding events has increased to six, and since
January of this year the conference division has been extended to cover
education management events to complement the Optimus schools titles. With
education conferences now expected to reach seven this year, the overall
schedule has grown to 14 events with further growth planned for next year.
The Lottery Monitor national conference, however, remains the single biggest and
highest-margin event in the division. It has become the natural meeting place
for ministers, local authorities and Lottery distributors and the 6th Annual
event, which took place earlier this month, produced record revenues from over
400 delegates.
Strong cashflow: cash ahead of earnings by £278,639
Cash receipts have increased by 112% to £1,442,639 (£679,231) and the group was
cash positive in the first half by £129,862, compared to a cash deficit in the
same period last year of £236,372. This has been achieved while still increasing
the group's substantial investment in acquiring new customers.
The substantial £278,639 difference between the cash surplus of £129,862 and the
loss before amortisation of goodwill of £150,657 is typical of a subscription
publishing business in which customers pay in advance, and is reflected in the
amount of deferred revenue held on the company's balance sheet. The rapid growth
in subscriptions over the period has meant that the group now has the benefit of
£1,213,332 of revenue that has been deferred to future periods.
FUTURE PROSPECTS
Electric Word plc has now established a sound, sustainable business in niche
markets built on renewable subscription revenues and cross-sold related
products. The company has been greatly helped by operating in growing markets
with products that do not depend on advertising revenue to sustain them in what
has been a difficult half year for many publishers.
Following 18 months of rapid growth, largely through existing products, the next
year will see the cash generated by those products reinvested in creating new
newsletters and other high-value publishing products and in building new revenue
streams.
The directors can see opportunities to research and develop potential new
newsletters in all of the group's markets, but particularly in the areas of
regulatory and public sector management information. And in addition to this
organic growth, the next year may afford some targeted acquisition opportunities
at more realistic prices than were available in 2001.
Once again we would like to thank all of Electric Word's staff, editors and
writers who have worked so hard and well to achieve these results. With a strong
team and growing markets we can look forward to the future with confidence.
ACCOUNTING POLICIES AND EGM
There will be an opportunity to discuss this interim report and in particular
the group's highly conservative revenue recognition and accounting policies at
an extraordinary general meeting to be held on the 22nd August, 2002, as a
result of the disproportionate strength of the deferred revenue in our balance
sheet.
As mentioned earlier, the company operates conservative revenue recognition and
accounting policies, providing for all of its deferred revenue in its balance
sheet as a liability even though on average it refunds to customers less than 5%
of all subscription cash received (just 3.1% in the first half of this year). As
the company becomes more successful in increasing the number of its subscribers,
deferred revenue increases and has the anomalous effect of reducing the net
asset value of the company's business on its balance sheet. Indeed, this result
is all the more inappropriate as the directors view the amount of the company's
deferred revenue as a strength, providing a firm foundation for the next year's
earnings and reflecting the fact that the company's customers pay in advance for
their subscriptions.
The size of the company's provision for deferred revenue in the balance sheet
has now increased to such an extent that its net asset value is less than half
of its called up share capital; as a result the Companies Act requires the
directors to convene an extraordinary general meeting to consider whether any,
and, if so what, steps should be taken to deal with the situation.
The directors strongly recommend that no special action is required as the
Company is cash positive and growing strongly. Nor do the directors recommend
that any change in accounting policy is required or desirable as the existing
revenue recognition policy is both established in the publishing sector and
brings considerable corporation tax benefits. The directors would, however,
encourage shareholders to come to the meeting as it provides an excellent
opportunity to discuss more fully these interim results.
Nigel Wray, Chairman
Julian Turner, Chief Executive
GROUP PROFIT AND LOSS ACCOUNT
for the period ended 31 May 2002
Year
6 months 6 months ending
ending ending 30 November
31 May 2002 31 May 2001 2001
(unaudited) (unaudited) (audited)
£ £ £
TURNOVER 1,060,022 557,389 1,416,609
Cost of sales (727,539) (531,135) (1,409,126)
Gross profit 332,483 26,254 7,483
Other operating expenses (net) (483,140) (341,249) (770,019)
Operating loss before goodwill amortisation (150,657) (314,995) (762,536)
Goodwill amortisation (69,813) (70,213) (139,625)
OPERATING LOSS (220,470) (385,208) (902,161)
Interest receivable 1,880 6,843 9,800
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (218,590) (378,365) (892,361)
Taxation - - (251)
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (218,590) (378,365) (892,612)
Basic and diluted loss per share (0.28p) (0.56)p (1.24)p
GROUP BALANCE SHEET
at 31 May 2002
31 May 2002 31 May 2001 30 November
(unaudited) 2001
(unaudited) (audited)
£
£ £
FIXED ASSETS
Intangible assets 1,114,046 1,253,271 1,183,859
Tangible assets 27,427 21,734 17,671
1,141,473 1,275,005 1,201,530
CURRENT ASSETS
Stocks 7,695 7,368 3,750
Debtors 244,447 169,804 157,624
Cash at bank and in hand 498,511 338,307 368,649
750,653 515,479 530,023
CREDITORS: Amounts falling due within one year
Deferred revenue (1,213,332) (452,634) (754,895)
Other creditors (289,227) (175,446) (368,501)
NET CURRENT LIABILITIES (751,906) (112,601) (593,373)
TOTAL ASSETS LESS CURRENT LIABILITIES 389,567 1,162,404 608,157
CREDITORS: Amounts falling due after more than one year - (40,000) -
NET ASSETS 389,567 1,122,404 608,157
CAPITAL AND RESERVES
Called up share capital 770,168 770,168 770,168
Share premium account 1,262,705 1,463,943 1,262,705
Merger reserve 105,011 (96,227) 105,011
Profit and loss account (1,748,317) (1,015,480) (1,529,727)
SHAREHOLDERS' FUNDS 389,567 1,122,404 608,157
GROUP CASH FLOW STATEMENT
for the period ended 31 May 2002
6 months 6 months Year
ending ending ending 30
November
31 May 2002 31 May 2001 2001
(unaudited) (unaudited) (audited)
£ £
£
Cash inflow/(outflow) from operating activities 143,699 (240,793) (189,173)
Returns on investments and servicing of finance 1,880 6,843 9,800
Taxation - - (20,870)
Capital expenditure and financial investment (15,717) (2,422) (5,787)
CASH INFLOW/(OUTFLOW) BEFORE FINANCING 129,862 (236,372 ) (206,030)
INCREASE/(DECREASE) IN CASH IN THE PERIOD 129,862 (236,372) (206,030)
NOTES TO THE INTERIM REPORT
1. PRESENTATION OF INTERIM RESULTS
This interim report was approved by the Directors on 16 July 2002. The
results for both the current and the comparative half year have not been
audited, but were the subject of an independent review carried out by the
company's auditors, Baker Tilly. Their review confirmed that the figures
were prepared using accounting policies and practices consistent with those
adopted in the 2001 annual report. The audited results for the year ended 30
November 2001 are an abridged version of the company's report and financial
statements which have been filed with the Registrar of Companies. The
financial information contained in this interim report does not constitute
statutory accounts as defined by Section 240 of the Companies Act 1985. All
shareholders will receive a copy of this interim report, which can also be
obtained from the company's registered office at 67-71 Goswell Road, London
EC1V 7EP.
COST OF SALES 6 months 6 months Year
ending ending ending 30
31 May 31 May November
2002 2001 2001
£ £ £
Marketing 398,451 277,297 785,635
Other costs of sales 329,088 253,838 623,491
727,539 531,135 1,409,126
2. TAXATION
No taxation has been provided due to losses in the period.
3. DIVIDENDS
The directors do not recommend the payment of a dividend.
4. LOSS PER SHARE
Basic and diluted loss per share is based on the loss on ordinary
activities after taxation and on the following weighted average number
of shares in issue.
31 May 2002 77,016,710
31 May 2001 67,256,912
30 November 2001 72,150,180
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN 6 months 6 months Year
NET FUNDS
ending ending ending 30
31 May 31 May November
2002 2001 2001
£ £ £
Increase/(decrease) in cash in the period 129,862 (236,372) (206,030)
Net funds at beginning of period 368,649 574,679 574,679
Net funds at end of period 498,511 338,307 368,649
ANALYSIS OF CHANGES IN NET FUNDS At 1 December Cashflow At 31May 2002
2001
£ £ £
Cash at bank and in hand 368,649 129,862 498,511
368,649 129,862 498,511
RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS
Share Merger Profit Total
Share premium reserve and loss
capital account account
£ £ £ £ £
At 1 December 2001 770,168 1,262,705 105,011 (1,529,727) 608,157
Loss for the period - - - (218,590) (218,590)
At 31 May 2002 770,168 1,262,705 105,011 (1,748,317) 389,567
This information is provided by RNS
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