RNS Number:6687H
Electric Word PLC
19 February 2003
ELECTRIC WORD PLC
FINAL RESULTS FOT THE YEAR ENDED 30 NOVEMBER 2002
OVERVIEW
Electric Word plc provides professional development information, particularly
for managers in the public sector. Its main markets are education management,
public sector funding and health. Most revenue comes from subscriptions to 15
specialist newsletters, but Electric Word also produces books, reports, files
and conferences.
Results summary
* Cash balance up to #559k (2001: #369k)
* Positive cashflow of #191k (2001: deficit of #206k)
* Turnover up 76% to #2.5m
* Gross profit up to #887k (2001: #16k)
* Loss before goodwill and new product development down 90% to #66k
* Pre-tax loss down 46% to #480k
* 71% of revenue from renewable subscriptions, 4% from advertising and
sponsorship and 25% from other sales
* Average number of subscriptions up 35% to 20,592Net investment in new
product development up 196% to #278k
* 3 new newsletters, 8 new conferences and 2 books launched in the year
* Public sector reform continues to drive demand for management information
Financial Highlights
2002 2001
# #
Increase in cash in the year 190,747 (206,030)
Cash inflow before investment in research and development 382,289 (128,151)
Turnover 2,494,307 1,416,609
Gross profit 887,097 16,328
Operating Loss before goodwill (344,966) (762,536)
Net investment in new product research & development 278,490 94,189
Operating loss before goodwill and R&D (66,476) (668,347)
CHAIRMAN'S STATEMENT
Dear Fellow Shareholders,
2002 has been an excellent year for our business, characterised by strong growth
from our established products before investing in a new period of sustained
product development.
Each of our markets in education management, public sector funding and health
remained strong throughout the year. In particular, many years of education
reforms have established a new market among managers in schools and local
authorities. Their need is for information and support both to develop their
professional skills and to keep them fully informed in a fast-changing
regulatory environment.
The result has been rapid growth in subscriber numbers, improved profitability
and the visible creation of long-term value through the company's robust
subscription model.
2002 was the first year in which Electric Word was cash positive, generating
cash inflows of #190,747 compared to a deficit in 2001 of (#206,030). This was
achieved while increasing the company's investment in product development.
Turnover increased by 76% year-on-year, driven equally by more subscribers (up
35% on 2001) and a higher average revenue achieved per subscriber, especially
from cross-sales of non-subscription products such as conferences (13 produced
in 2002 compared to 5 in 2001).
In 2002 the company more than halved its operating loss before goodwill to
#344,966 (from #762,536 in 2001). The net loss of #480,268 compares to #892,612
in 2001.
The main driver of this progress has been the increase in profitability of the
established newsletters. With this achieved, the Group has used some of the cash
generated by those titles to fund an exciting programme of new product research
and development.
By the end of 2002 three newsletters had been launched and eight new conferences
developed. Indeed, the team's ability to manage the testing, launching and
marketing of new products represents a significant strength and one of many
sources of optimism for the future.
Finally I would like to thank Tony Ageh, who steps down from the Board at the
2003 Annual General Meeting, for his support and valuable contribution since
Electric Word's flotation in March 2000. We welcome to the Board Chris Kington,
co-founder of Optimus and former Vice Chairman of the Educational Publishers
Association, whose exceptional understanding of education publishing has already
made such a very significant difference to our business.
Nigel Wray,
Chairman
CHIEF EXECUTIVE'S STATEMENT
* Business based on high-quality renewable subscriptions
* 71% of revenue from renewable subscriptions
* Paid subscribers up 35%
* Average revenue per subscriber up 30%
* Deferred subscriptions revenue doubles to #1.4m
* #382k net cash inflows before R&D investment
* Gross profits up from #16k to #887k
Electric Word is a subscriptions-based business and subscriptions were at the
heart of the company's success in 2002, accounting for 71% of turnover. They
provide the foundation of renewable revenue on which we can build other revenues
from different products. In 2002 the number of subscribers increased by 35% to
20,592 and total revenue per subscriber increased by 30%.
Creation of long-term value
Subscriptions give us very visible revenues. One indication of the value created
is the amount of subscription revenue that has been deferred to future years.
Revenue is recognised gradually over the term of a subscription (commonly one
year). On average, less than half the cash received is shown as revenue in the
current year. The remainder is deferred, and will appear as revenue in the
future. Over the last two years the deferred revenue has increased by #1
million:
2000 2001 2002
Deferred subscription revenue #357,670 #712,720 #1,355,580
The significance of this 90% increase in deferred revenue is that it provides a
firm foundation for the following year. When added to the revenue we can
reliably expect from renewals of existing subscriptions, the starting-point for
2003, before any new subscribers have been acquired, is greater than the #1.8m
total subscription revenue achieved in 2002.
Strong cashflow
Our business model entails a significant investment in acquiring new customers
(typically equivalent to a subscriber's first year's payment), which then
converts to high marginal profits when customers renew. Cashflow is strong
because subscribers pay in advance while taxable profits are delayed because the
convention is to spread revenue over the full period of the subscription while
recognising costs as they arise.
The progress in bringing established products to profitability is shown by the
#500k improvement in the cash generated before investment in new product
development:
2002 2001
Cash inflow #382,289 #(128,151)
(before new product research & development costs)
Gross profits up #870k
Gross profits showed an even larger improvement, up from just over break-even in
2001 (a gross profit of #16,328) to #887,097 in 2002. At the operating profit
level the loss before goodwill and new product development reduced to just
#66,476 from the loss of #668,347 reported in 2001.
A key driver of earnings is the larger number of established newsletters in the
portfolio.
2002 2001 2000
Launched in the year 3 1 5
Launched in the previous year 1 5 2
Established titles 12 7 5
Like-for-like subscription revenues up 60%
Like-for-like revenues on the 12 established titles increased by 60%, bringing a
gross profit of #514k compared to a like-for-like loss of #119k in 2001, and a
gross cash surplus of #1m. Margins were helped by the fact that, as the
proportion of renewers increased on these titles, marketing costs reduced as a
percentage of revenue from 68% in 2001 to 37%.
Strategic priorities
The priority for the business in 2001 and the first half of 2002 was to build
the established titles, many of which had been acquired in 2000. From the second
half of 2002, with the group by then cash positive for over a year, the
strategic priority shifted to investing that cash surplus in developing new
products for future growth. The returns from this activity, with three
newsletter launches in the second half of the year and four new conferences,
have justified a significant increase in our new product development investment
in 2003. This does not exclude the possibility of the Group making acquisitions
in 2003. Certainly, enormous value has been created from the acquisitions made
in 2000. However it does mean that we are not dependent on acquisitions for
future growth and that future deals will have to show greater value than that we
have been able to create from our own organic growth.
Current trading
Current trading in the first quarter of 2003 has been positive in all markets.
Product development has continued well, with a further three new newsletters
successfully tested. The first quarter has also delivered particularly strong
growth in on-line subscriptions, which for the first time formed the majority of
new subscriptions in the sports health market.
Of course, these and other successes have been achieved thanks to the skill and
hard work of the company's staff, editors and contributors. On behalf of the
Board I would like to thank them for all their efforts in 2002. The strength of
this team is a large part of the confidence we feel in the company's future.
Julian Turner,
Chief Executive
DEVELOPMENT DIRECTOR'S STATEMENT
New Product Development
* 229% increase in research and development investment in 2002
* Three newsletters launched
* Eight new conferences developed
In 2002 Electric Word invested over #300,000 in researching and developing new
products (up from #94k in 2001). This investment is split between researching
new ideas, pre-launch testing, and post-launch development costs.
Typically, each stage of product development is more expensive than the one
before, so increasingly rigorous hurdles must be cleared for a prospective title
to get to a launch. On average, including the costs of researching rejected or
shelved products, it takes an investment of around #30,000 to achieve a decision
as to whether or not to launch a new newsletter. To date, we have only closed
one title out of the ten launched since March 2000.
New launches in 2002
Most launches in 2002 were in the education management sector. Early Years
Update, a newsletter launched in September 2002, takes the successful treatment
of management issues that the company has adopted in the secondary and primary
schools market and applies them to the nursery and pre-school market. Curriculum
Briefing is a substantial, termly analysis of topics of strategic importance to
curriculum managers in secondary schools, and is the second subscription product
that Electric Word publishes for that audience. In addition to these newsletters
the company successfully launched a professional development work system and
four new education conferences.
In the public sector funding market we were pleased to add to Lottery Monitor
with External Funding Bulletin, a new newsletter aimed at managers in local
authorities and the voluntary sector.
Chris Kington,
Development Director
CHIEF OPERATING OFFICER'S STATEMENT
Operating review
* Education management businesses increased turnover by 240%
* Funding and Lottery business increased turnover by 40%
* Sports Health business increased turnover by 26%
* Number of conferences increased from 5 to 13
We are pleased to report positive trading conditions in all markets in 2002.
Education management
Electric Word entered the education management market with the acquisition of
four newsletters from Optimus Publishing Ltd in May 2000 with a combined
turnover of less than #100,000. It is now the company's biggest sector, with
twelve newsletters and other products which together account for revenues of
#1.2m, 49% of Group turnover.
Three new newsletters were launched in 2002, as well as five conferences. Just
as important has been the speed of growth of some of the established products,
driving the 240% year-on-year increase in turnover.
With most of the education newsletters now generating cash, 2003 will see a
further significant investment in new product development, including the
development of some parallel products in other related sectors.
Funding and the Lottery
The range and complexity of funding alternatives for public and voluntary sector
organisations has continued to evolve. In particular the increasing requirement
for 'match funding', which requires organisations to seek funds from more than
one source, has made the need for reliable management information in this area
all the greater.
Since the acquisition of Lottery Monitor in August 2000 Electric Word has grown
subscriber numbers and built on a successful annual National Lottery conference
to create a family of funding and education events. In 2002 we ran eight funding
conferences (five in 2001), which contributed to a 40% increase in turnover over
2001. Further growth in 2003 can be expected with the successful launch of
External Funding Bulletin to address a broader range of funding issues.
Sports Health
Electric Word publishes two newsletters and a number of special reports in the
fast-growing sports science and sports health field. Peak Performance, at twelve
years old the company's most mature title, is read by competitive athletes,
coaches and trainers across 32 different sports. In 2000 we launched Sports
Injury Bulletin (SIB) to give deeper coverage of a favourite topic for a section
of the Peak Performance readership: sports injury doctors and therapists. SIB is
now making a cash contribution to overheads in its own right.
The result of the launch has been a shift of subscribers from Peak Performance
to the higher-price SIB, as well as a 37% increase in the overall number of
subscriptions in the last two years and a 59% increase in revenue. In 2002 the
division achieved a 26% year-on-year increase in turnover.
Dominic Jacquesson,
Chief Operating Officer
CONSOLIDATED PROFIT & LOSS ACCOUNT
for the year ended 30 November 2002
2002 2002 2001 2001
# # # #
TURNOVER 2,494,307 1,416,609
COST OF SALES
Marketing costs (830,730) (779,723)
Other cost of sales (776,480) (620,558)
GROSS PROFIT 887,097 16,328
Operating expenses (net) (921,730) (684,675)
New product development costs (310,333) (94,189)
(344,966) (762,536)
Amortisation of goodwill (139,625) (139,625)
Total administrative expenses (1,371,688) (918,489)
OPERATING LOSS (484,591) (902,161)
Interest receivable 4,323 9,800
LOSS ON ORDINARY ACTIVITIES BEFORE (480,268) (892,361)
TAXATION
Taxation - (251)
LOSS ON ORDINARY ACTIVITIES AFTER (480,268) (892,612)
TAXATION
LOSS PER SHARE
Basic (0.62)p (1.24)p
Diluted (0.62)p (1.24)p
The operating loss for the year arises from the group's continuing operations.
CONSOLIDATED BALANCE SHEET
30 November 2002
Group Group
2002 2001
# #
FIXED ASSETS
Intangible assets 1,044,234 1,183,859
Tangible assets 29,833 17,671
1,074,067 1,201,530
CURRENT ASSETS
Stocks 24,797 3,750
Debtors 283,569 157,624
Cash at bank and in hand 559,396 368,649
867,762 530,023
CREDITORS: Amounts falling due within one year
(including convertible debt)
Deferred revenue (1,382,884) (754,895)
Other creditors (422,485) (368,501)
(1,805,369) (1,123,396)
NET CURRENT LIABILITIES (937,607) (593,373)
TOTAL ASSETS LESS CURRENT LIABILITIES 136,460 608,157
CAPITAL AND RESERVES
Called up share capital 778,739 770,168
Share premium account 1,262,705 1,262,705
Merger reserve 105,011 105,011
Profit and loss account (2,009,995) (1,529,727)
SHAREHOLDERS' FUNDS 136,460 608,157
CONSOLIDATED CASHFLOW STATEMENT
for the year ended 30 November 2002
2002 2001
# #
Cash flow from operating activities 206,473 (189,173)
Returns on investments and servicing of finance 4,323 9,800
Taxation - (20,870)
Capital expenditure and financial investment (28,620) (5,787)
Cash inflow/(outflow) before financing 182,176 (206,030)
Financing 8,571 -
INCREASE/(DECREASE) IN CASH IN THE YEAR 190,747 (206,030)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN FUNDS
2002 2001
# #
Increase/(decrease) in cash in the year 190,747 (206,030)
MOVEMENT IN NET FUNDS/(DEBT) IN YEAR 190,747 (206,030)
NET FUNDS AT 1 DECEMBER 2001 368,649 574,679
NET FUNDS AT 30 NOVEMBER 2002 559,396 368,649
NOTES TO THE FINANCIAL STATEMENTS
LOSS PER ORDINARY SHARE
The calculation of loss per ordinary share is based on the following losses and
numbers of shares.
Basic Basic
2002 2001
# #
Loss for the financial year (480,268) (892,612)
2002 2001
No. of No. of
shares shares
Weighted average number of shares 77,088,139 72,150,180
There is no dilutive effect from the issue of share options, warrants or
the future redemption of convertible loan stock.
This information is provided by RNS
The company news service from the London Stock Exchange
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