RNS Number:5331C
Electric Word PLC
21 August 2007
21 August 2007
ELECTRIC WORD PLC
Interim results to 31 May 2007
140% PROFIT IMPROVEMENT AS MARGINS BENEFIT FROM ACQUISITIONS AND EFFICIENCIES
RESULTS HIGHLIGHTS
* Adjusted pre-tax profit* up 140% to #750k (#313k)
* Organic profit improvement of 87%
* Adjusted pre-tax margins* up to 11.4% (6.9%)
* Turnover up 46% to #6.6m (#4.5m)
* Adjusted pre-tax EPS* (diluted) doubles to 0.46p (0.23p)
* Positive full-period contribution from Incentive Plus acquisition
* Exciting strategic move into parents market
* Trading in line with Board expectations
* Before tax, goodwill, exceptionals, FRS20 and share-based payment costs and
minority interests
Julian Turner, Chief Executive of Electric Word, commented:
"For the second successive year our interim results show very strong profit
improvement, reflecting both the successful integration of the acquisitions we
completed last year and the Group's enhanced ability to build margin. With a
first complete half-year contribution from Incentive Plus, these results
illustrate the benefit of increased scale, together with greater profitability
from the continuing businesses as we make ever better use of our portfolio of
complementary products and revenue streams in our niche markets in education and
sport.
"We have identified particular opportunities in the parents' end of the
education market where we have announced today a strategic investment and see
other opportunities. Both our key sectors are performing in line with our
expectations and, supported by Government priorities, we believe the Group has
an excellent platform for further expansion in the rest of the year and beyond."
ENDS
Julian Turner, Chief Executive
Electric Word 0207 954 3470
Tim Spratt / Nicola Biles
Financial Dynamics 0207 831 3113
EXTRACTS FROM CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
The results for the half year to 31 May 2007 show the business delivering
further substantial improvements in both pre-tax profits and operating margins.
The majority of the 140% increase in adjusted pre-tax profits derives from the
87% profit improvement achieved in the continuing businesses, with the remainder
resulting from the full benefit of last year's Incentive Plus acquisition.
Overall, adjusted pre-tax profits rose to #750k (#313k) driven by adjusted
pre-tax margins increasing from 6.9% to 11.4%. Equivalent earnings per share
(fully diluted) doubled to 0.46p (0.23p).
Acquisitions, including Incentive Plus and CKP in 2006 and Smallwood Publishing
and Ark Sports in 2007, also supported Group turnover, up 46% to #6.6m (#4.5m).
In the continuing business the strongest areas of growth were in the events
business, with revenue up 67%, and in books and reports, which grew revenue by
53%.
2006 2007
#'000 #'000
Adjusted pre-tax profits 750 313
Amortisation of Goodwill (434) (308)
Exceptional costs (103) (0)
FRS20 and SBP costs (48) (16)
Statutory pre-tax profits 165 (11)
As set out in last year's Annual Report, the Group's strategic objectives
combine investment and improved efficiency. We aim to build margins by scaling
up in established functions and sectors and by making the most of the wide range
of revenue streams that the Group can now access.
We have achieved this efficiency improvement, reflected in a 65% improvement in
adjusted pre-tax margins, in two key ways. Firstly we have tried to improve the
scale at which we are engaged in some functions while exiting or reducing
investment from sub-scale activities which are unlikely to meet our future
profit benchmarks. For example, as online and other marketing channels have
improved our access to market we have significantly increased our investment in
both book and report publishing to increase the range of relevant products that
we can source from the same underlying sector expertise. This year books and
reports will account for over #1m of revenue and are likely to be an even more
significant activity in the future.
At the same time, we have reduced our investment in some areas that have become
sub-scale. What was described last year as the public sector we are now
redefining more tightly as the education sector, and this half-year, excluding
the acquisitions, it has delivered a 23% like-for-like increase in operating
profits from a more focused revenue base.
The second main route for improving efficiency has been through achieving
greater leverage from our existing Group infrastructure, both in systems and
management. We have continued the process of integrating and reducing the number
of back office systems, and following six acquisitions in 18 months over 2006-7
we also reorganised the structure of companies and management within the Group,
which incurred #103k of one-off exceptional costs this year. However as the
business has grown both organically and by acquisition, central Group operating
costs have reduced as a proportion of turnover from 6.3% to 4.1%, emphasising
the potential for further improving margins as the Group achieves even greater
scale in the future.
Education sector
6 months 6 months %
to 31 May 2007 to 31 May 2006 change
Turnover #4,102,941 #2,658,113 54%
Operating profit #609,731 #282,211 116%
Operating margin 14.9% 10.6%
Following the company reorganisation, the education sector comprises two
businesses, Optimus Professional Publishing (OPP), including all Electric Word's
school management and professional development publishing for this market, and
Incentive Plus (IP), acquired in April 2006, which sells a further 1,600 of
other content producers' resources for teachers in the field of behaviour and
emotional development.
The full half-year contribution of Incentive Plus demonstrates the value of this
acquisition which has driven sales growth of 54% in the sector; indeed it
achieved revenue growth of 27% compared to the same period last year on the back
of an increased investment in marketing. There were also sales contributions
from the acquisition of CKP, also in 2006, and Smallwood Publishing, a much
smaller competitor to Incentive Plus acquired in April 2007. Profits in the
sector more than doubled, up 116% to #610k (#282k in 2006). Margins were boosted
by both the IP acquisition and the organic profit improvements already
described, increasing to 14.9% from 10.6%.
In addition to acquisitions and efficiency improvements we have been investing
in three areas: the books business, in which we have published 14 new titles in
the current academic year, a new professional development newsletter launch on
Learning & Teaching and continued investment in the teachers' professional
development portal www.teachingexpertise.com, launched in November 2006.
Underpinning all these developments is the strong alignment between the Group's
education business and the Government agenda that is shaping future education
priorities. A major funded initiative that expands from primary to secondary
schools this autumn is around the Social And Emotional Aspects of Learning
(SEAL) which is particularly relevant for the Incentive Plus product portfolio
as well as several existing Optimus constituencies. This is combined with a
further emphasis on developing children's learning skills which requires a
significant shift in teaching styles and creates further professional
development demands; particularly relevant for our gifted and talented, special
needs and teaching and learning niches. At the same time education is itself
increasingly part of broader children's and family services, which resonates
with the Group's strength in child protection and our interest in the broader
parents market.
Sport sector
6 months 6 months %
to 31 May 2007 to 31 May 2006 change
Turnover #2,502,152 #1,878,335 33%
Operating profit #425,552 #309,921 37%
Operating margin 17.0% 16.9%
The Sport sector, which comprises the Sports Performance division and
SportBusiness Group (acquired in December 2005), achieved 33% revenue growth in
the half-year. This was achieved despite the winding-down in the first quarter
of the Asian Games publishing contract on the back of an excellent performance
from the i-Gaming business and strong growth in SportBusiness conferences (up
191%) and high-value research reports (up 48%).
Margins also improved from 16.5% to 17.0%, driven by the increased profitability
of the Sports Performance business as it continues to migrate online. The Sports
Performance network of websites has created a valuable community of approaching
1m unique visits from competitive sportspeople per month which is now being
converted into profits as marketing costs reduce.
Online activity has also contributed to SportBusiness's success, both through
its e-marketing channel and the vitality of the i-Gaming space (despite
regulatory changes in the US last October) as brands look to Europe and Asia for
expansion where there is demand for information and desire to create new
opportunities. Additionally SportBusiness has been driven by its valuable place
in the global community of sports federations and cities competing to stage
major events and the high importance of sports rights to both media businesses
and brand advertisers. The Group's wide range of competencies across different
publishing formats enables it to make the most of these and future
opportunities.
Current trading and prospects
Since the end of May the Group has made three further significant investments.
The first has been in strengthening the management team by adding Quentin
Brocklebank to the Board as Finance Director. Quentin has many years experience
in the specialist publishing sector and will further support the Group's
capacity and scalability. Natascha Lloyd, who has led the finance function
excellently since the Company's inception, takes on the role of HR Director and
continues as Company Secretary.
Secondly, the growth achieved in the first half at Incentive Plus, together with
future opportunities has supported relocation to larger premises and warehousing
in August 2007. This gives the Group the infrastructure to scale up the current
operation and build new commerce revenues both in the existing education sector
and outside it.
This will be particularly valuable in the light of the third investment - a
strategic move into the parents market. Education remains a burning issue for
families as well as the Government and there is a significant opportunity to
support parents in the emotional and intellectual development of their children.
Electric Word has therefore bought an option for #75,000 to make a phased
acquisition of all the shares in MyChild magazine. We have now acquired an
initial 10% tranche for #137,500, with the option to purchase a majority stake
by 30 November 2007 and 100% from a final earn-out based on 2008 results.
MyChild has approximately 18,000 magazine subscribers and other customers
looking to get the most out of and to supplement their children's education..
There is the opportunity to use Incentive Plus's infrastructure to significantly
expand its commerce revenues and the expertise developed in the Sports
Performance business to build its web presence.
Current trading is in line with the Board's expectations and delegate and
advertising sales bookings for the autumn are ahead of last year. The Board
continues to review acquisition opportunities and remains confident that
Electric Word can continue to expand and deliver increasing returns to
shareholders in the years to come.
Peter Rigby Chairman
Julian Turner Chief Executive
Definitions
Adjusted pre-tax profits: Profits before tax and minority interests, excluding
goodwill amortisation, exceptionals, FRS20 and share-based payment costs
Adjusted profits: Profits after tax excluding goodwill amortisation,
exceptionals, FRS20 and share-based payment costs and minority interests
Adjusted pre-tax margin: Adjusted pre-tax profits as a % of turnover
Adjusted pre-tax EPS (diluted): Adjusted pre-tax profits per average shares in
issue (fully diluted)
ElectricWord plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the period ended 31 May 2007
6 months
6 months ended Year
ended 31 May ended
31 May 2006 30 November
2007 (unaudited) 2006
(unaudited) (restated) (restated)
Note # # #
TURNOVER 6,605,093 4,536,448 10,712,433
COST OF SALES
Cost of sales (2,347,851) (1,419,415) (3,633,291)
Marketing (1,211,442) (993,431) (2,160,353)
(3,559,293) (2,412,846) (5,793,644)
GROSS PROFIT 3,045,800 2,123,602 4,918,789
Other operating expenses (2,328,939) (1,834,408) (3,981,420)
Amortisation of goodwill (434,391) (308,354) (704,003)
TOTAL ADMINISTRATIVE (2,763,330) (2,142,762) (4,685,423)
EXPENSES
OPERATING PROFIT/(LOSS) 282,470 (19,160) 233,366
Exceptional 2 (102,684) - -
costs
Interest receivable 13,032 13,858 28,003
Interest payable (28,331) (5,909) (64,962)
PROFIT ON ORDINARY ACTIVITIES BEFORE 164,487 (11,211) 196,407
TAXATION
Taxation 3 (101,075) 72,005 72,611
PROFIT ON ORDINARY ACTIVITIES AFTER 63,412 60,794 269,018
TAXATION
Minority interests (36,094) (24,122) (27,037)
PROFIT ON ORDINARY ACTIVITIES FOR THE 27,318 241,981
FINANCIAL YEAR
36,672
EARNINGS PER SHARE 5
Basic 0.02p 0.03p 0.19p
Diluted 0.02p 0.03p 0.16p
ElectricWord plc
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the period ended 31 May 2007
6 months 6 months Year
ended ended ended
31 May 31 May 30 November
2007 2006 2006
(unaudited) (unaudited) (restated)
(restated)
# # #
Profit for the period 63,412 60,794 269,018
Prior period (40,448) - -
adjustment
TOTAL GAINS AND LOSSES
RECOGNISED SINCE LAST ANNUAL
REPORT 22,964 60,794 269,018
Attributable to:
- Equity holders of the (13,130) 36,672 241,981
parent
- Minority interests 36,094 24,122 27,037
The prior year adjustment represents the cumulative adjustment to reserves (note
1). The prior periods' profits will have been adjusted by the amount that
relates to those periods.
ElectricWord plc
CONSOLIDATED BALANCE SHEET
At 31 May 2007
31 May 31 May 30 November
2007 2006 2006
(unaudited) (unaudited)
(restated) (restated)
# # #
FIXED ASSETS
Intangible assets 6,388,465 6,460,236 6,122,743
Tangible assets 333,850 210,308 313,900
Investments - 90,000 90,000
6,722,315 6,760,544 6,526,643
CURRENT ASSETS
Stocks 335,025 191,344 284,462
Debtors due within one year 2,734,667 2,312,282 2,618,336
Debtors due after more than one year 445,287 350,389 578,097
Cash at bank and in hand 1,263,625 1,033,899 1,475,468
4,778,604 3,887,914 4,956,363
CREDITORS: Amounts falling due within one
year
Deferred revenue (2,873,373) (2,806,670) (3,079,905)
Other creditors (1,892,370) (1,316,272) (1,828,246)
(4,765,743) (4,122,942) (4,908,151)
NET CURRENT ASSETS/(LIABILITIES) 12,861 (235,028) 48,212
TOTAL ASSETS LESS CURRENT LIABILITIES 6,735,176 6,525,516 6,574,855
CREDITORS: amounts falling due after more
than one year (Note 6)
(1,387,768) (1,713,099) (1,489,302)
PROVISIONS FOR LIABILITIES AND CHARGES (408,925) (368,736) (330,592)
NET ASSETS 4,938,483 4,443,681 4,754,961
CAPITAL AND RESERVES
Called up share capital 1,423,442 1,368,942 1,381,442
Share premium account 3,037,933 2,877,933 2,977,933
Merger reserve 105,011 105,011 105,011
Reserve for own shares (67,497) (24,209) (67,497)
Reserve for Share Based Payments 72,557 15,927 54,448
Profit and loss account 303,905 92,586 276,587
EQUITY SHAREHOLDERS' FUNDS 4,875,351 4,436,190 4,727,924
Minority interests 63,132 7,491 27,037
TOTAL CAPITAL EMPLOYED 4,938,483 4,443,681 4,754,961
ElectricWord plc
CONSOLIDATED CASH FLOW STATEMENT
For the period ended 31 May 2007
6 months 6 months Year
ended ended ended
31 May 31 May 30 November
2007 2006 2006
(unaudited) (unaudited) (audited)
# # #
CASH INFLOW/(OUTFLOW) FROM OPERATING 252,245 (395,259) 511,087
ACTIVITIES
Returns on investments and servicing of 381 7,949 (11,769)
finance
Taxation (3,621) (11,650) (84,582)
Capital expenditure and financial (73,915) (64,234) (226,815)
investment
CASH INFLOW/(OUTFLOW) BEFORE 175,090 (463,194) 187,921
ACQUISITIONS AND FINANCING
Acquisitions (374,122) (2,013,657) (1,955,138)
CASH (OUTFLOW) BEFORE FINANCING (199,032) (2,476,851) (1,767,217)
Financing 102,000 2,630,073 2,362,008
(DECREASE)/INCREASE IN CASH IN THE (97,032) 153,222 594,791
PERIOD
ElectricWord plc
NOTES TO THE INTERIM REPORT
For the period ended 31 May 2007
1 PRESENTATION OF INTERIM RESULTS
This interim report was approved by the Directors on 20 August 2007. 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 UK Audit LLP. Their review confirmed that the figures were prepared
using accounting policies and practices consistent with those adopted in the
2006 annual report and those that will be adopted for the 2007 annual report.
The only change from the prior year's policies is the adoption of 'FRS20 -
Accounting for Share-Based Payments' which has reduced the current year profit
by #18,109 (period to 31 May 2006: #15,927; year to 30 November 2006 #19,140
including the reversal of #14,000 previously recognised under UITF 17). In
addition a charge of #21,308 was posted to the brought forward balances at 30
November 2005 to restate.
The audited results for the year ended 30 November 2006 are an abridged version
of the company's report and financial statements which have been filed with the
Registrar of Companies and on which the auditors gave an unqualified report. 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 33-41 Dallington Street,
London, EC1V OBB.
2 EXCEPTIONAL COSTS
The exceptional costs relate to the costs of a fundamental reorganisation of the
business as described in the annual report for the year ended 30 November 2006.
This resulted in a significant change in managements' responsibilities and a
restructure of the businesses in to four subsidiaries matching the Group's major
business units. The costs associated with this included some redundancy and
legal and financial assistance.
3 TAXATION
The Group has recognised deferred tax assets in respect of losses as follows:
Deferred
tax
#
1 December 2006 729,297
Transfer to profit and loss account (60,360)
31 May 2007 668,937
The tax charge is estimated based on the expected full year rate of taxation.
This has been estimated as follows:
%
Standard rate of corporation tax in the 30
UK
Expenses not deductible for tax purposes 3
Amortisation of intangible assets 53
Utilisation of tax losses (52)
Current tax rate 34
Utilisation of tax losses and movement 26
on deferred tax asset
Foreign tax paid 2
Effective tax rate 62
4 DIVIDENDS
The directors do not recommend the payment of a dividend.
5 EARNINGS PER SHARE
Basic and diluted earnings per share are based on the profit for the financial
year and on the following weighted average number of shares in issue. Earnings
per share has been diluted to reflect the impact of share options and warrants.
Period ended 31 May 2007 138,603,572 (Diluted:161,858,452)
Period ended 31 May 2006 113,262,580 (Diluted:137,369,163)
Year ended 30 November 2006 125,258,369 (Diluted:149,414,681)
6 CREDITORS: Amounts
falling due after 6 months 6 months Year
more than one year ended ended ended 30
31 May 31 May November
2007 2006 2006
# # #
Bank loan 407,267 600,000 500,000
Obligations under 49,005 85,474 70,153
finance leases
Other loans - 127,000 -
Preference shares 931,496 900,625 919,149
1,387,768 1,713,099 1,489,302
7 CASH FLOWS 6 months 6 months Year ended
ended ended 30 November
31 May 2007 31 May 2006 2006
(unaudited) (unaudited)
(restated) (restated)
# # #
a Reconciliation of operating
profit to net cash inflow from
operating activities
Operating profit/(loss) 282,470 (19,160) 233,366
Exceptional costs (102,684) - -
Amortisation 434,391 308,354 704,003
Depreciation 53,965 57,297 107,410
Increase in stocks (24,126) (19,650) (90,086)
Increase in debtors (19,584) (46,714) (626,481)
(Decrease)/increase in creditors (390,296) (691,313) 149,735
Share based payment 18,109 15,927 33,140
Net cash inflow/(outflow) from
operating activities
252,245 (395,259) 511,087
b Reconciliation of net cash flow to 6 months 6 months Year ended
movement in net funds ended ended 30 November
31 May 2007 31 May 2006 2006
# # #
(Decrease)/increase in cash in the (211,843) 153,222 594,791
period
Cash outflow/(inflow) from
decrease/(increase) in debt and
lease financing 114,811 (730,072) (612,561)
Change in net debt resulting from (97,032) (576,850) (17,770)
cash flows
Loans acquired with subsidiary - (127,000) -
Movement in net funds in year (97,032) (703,850) (17,770)
Net funds at beginning of period 716,852 734,622 734,622
Net funds at end of period 619,820 30,772 716,852
c Analysis of funds At 1 Other At 31
December non cash May
2006 Cash flow changes 2007
# # # #
Cash at bank and in 1,475,468 (211,843) - 1,263,625|
hand
Debt due within one (150,000) 92,733 (92,733) (150,000)
year
Finance leases due (38,463) 22,078 (21,148) (37,533)
within one year
Debt due after one (500,000) - 92,733 (407,267)
year
Finance leases due (70,153) - 21,148 (49,005)
after one year
716,852 (97,032) - 619,820
RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS
6 months
Reserve Profit 6 months ended 31
Share for own and ended 31 May 2006
Share premium Merger shares Reserve loss May 2006
capital account reserve for SBP account (restated)
# # # # # # # #
At 30 1,381,442 2,977,933 105,011 (53,497) - 317,035 4,727,924 1,090,855
November
Prior year - - - (14,000) 54,448 (40,448) - -
adjustment
(note 1)
At 1 December 1,381,442 2,977,933 105,011 (67,497) 54,448 276,587 4,727,924 1,090,855
Profit - - - - - 27,318 27,318 36,672
attributable
to members of
the holding
company
Issue of 42,000 60,000 - - - - 102,000 3,292,736
shares
Share based - - - - 18,109 - 18,109 15,927
payments
At 31 May 1,423,442 3,037,933 105,011 (67,497) 72,557 303,905 4,875,351 4,436,190
9 ACQUISITIONS
On 5 February 2007 the Group acquired 100% of the issued share capital of
ArkSports Limited ("ArkSports") for a consideration of #92,881 and #15,245 of
related costs. On acquisition ArkSports had net assets of #1,074, including
#6,314 of cash, against which a fair value adjustment of #772 was made to write
off the Tangible Fixed Assets. ArkSports is a specialist conference and research
business in the sport and technology sector. In the year to 31 March 2006
ArkSports made a loss after tax and dividends of #12,000 off revenue of #80,000.
In the period to 31 January 2007 ArkSports made a profit after tax and dividends
of #8,000 off revenue of #30,000. In the period to 31 May 2007 ArkSports
contributed #(5,683) to the group's result and #(9,614) to the group's net
operating cash flows.
On 1 May 2007 the Group acquired 100% of the issued share capital of Smallwood
Publishing Ltd ("Smallwood") for cash consideration of #182,000 initial and
maximum #75,000 contingent (over two years) plus #8,135 of related costs. On
acquisition Smallwood had net assets of #48,031, including #8,365 of cash,
against which fair value adjustments were made to write off #480 of Tangible
Fixed Assets and #2,930 of Debtor balances carried and provide for #14,750 of
costs (including onerous rent lease and redundancies). Smallwood is a catalogue
business supplying educational resources to schools and professionals. In the
year to 30 April 2007 Smallwood made a loss after tax and dividends of #40,000
off revenue of #210,000. In the period to 31 May 2007 Smallwood contributed
#2,248 to the group's result and #9,915 to the net operating cash flows.
On the acquisition of DMWSL 370 Limited made in the previous year, adjustments
were made this year to the goodwill carrying value to write off an investment of
#90,000, provide #132,119 of deferred / contingent consideration subsequently
paid and related to an acquisition made prior to acquisition in this Group,
reflect #34,558 of creditor movements and include #60,886 of related costs. On
other acquisitions made in the previous year, costs of #29,654 have been
included in the goodwill with respect to Incentive Plus Limited and Incentive
Publishing Limited but #9,808 has been taken off Chris Kington Publishing to
provide for slow moving stock.
As a result of the acquisitions and adjustments to prior year acquisitions made
in the period goodwill of #700,113 has been recognised and is being amortised
over 10 years. The net cash flow on acquisitions was #388,801 less #14,679 of
acquired cash.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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