- Turnover up 67%
- 41% of growth organic, 59% of growth from acquisitions
- 96% of revenue from high-quality renewable subscriptions
- Gross profit up 366%
- Two acquisitions fully integrated
- Five new newsletters launched
- Trading in Q1 2001 on target
- Outlook positive in key markets
- Cash flow ahead of target
Julian Turner, Chief Executive, commented:
"Our first year as a listed company has seen both strong organic growth and two important acquisitions. The group has demonstrated its expertise in generating high subscriptions revenues in niche markets that we believe will be resilient in the face of any economic downturn.
The last year has seen substantial progress in converting the potential described at the time of the flotation into delivered performance. We look forward to the future with confidence."
For further information, please call:
Julian Turner, Chief Executive
Electric Word plc
www.electricwordplc.com020 7251 9034 Jonathan Wright
Seymour Pierce020 7648 8700 Adam Reynolds / Takki Sulaiman
Hansard Communications
www.hansardcommunications.com020 7735 9415
07778 419 218
CHAIRMAN'S and CHIEF EXECUTIVE'S REPORT
We have been delighted and extremely encouraged by Electric Word's first year's results since flotation. Following admission to AIM in March 2000 we have seen an immediate impact from the group's investment in strengthening the management team, increasing scale through both acquisition and organic growth, developing operating systems, expanding marketing activity and creating new products.
The Electric Word business model is based around three principles:
This year the group has demonstrated the ability to deliver on each element of this model.
- high-quality renewable revenue: the investment in marketing to acquire new subscription customers is offset in subsequent years by high-margin renewal revenues received in advance
- building valuable intellectual property to create overlapping print, digital and conference products in niche markets
- maximising the value of our databases through intelligent direct marketing, cross-selling and new product development
THE GROUP
Electric Word plc floated on AIM at the end of March 2000 as a niche publishing company. At the time of flotation, Electric Word comprised one division, built around the Peak Performance sports science newsletter (previous year's results were as Peak Performance Publishing Ltd). Since then the group has acquired Optimus Publishing Ltd, which specialises in education management publishing, and Lottery Monitor Ltd, the leading name in the analysis of lottery funding.
A particularly strong Q4 has meant that the loss before tax for the year was £326,081. Excluding goodwill amortisation, the loss was £268,319 - comfortably ahead of the market's forecast of c £335,000.
Turnover for the year was £639,057, an increase of 67% on the £382,649 achieved in 1999. 96% of this revenue was from renewable subscriptions. Indeed at year end the group had £357,670 of deferred subscription revenue yet to be recognised in the profit and loss account – a conservative approach since marketing expenditure is written off at the time of the campaign.
The growth in turnover was split between the Peak Performance business (accounting for 41% of growth) and acquisitions (59% of growth), with the gross profit margin on the continuing business increasing from 10% in 1999 to 31%.
The increase in operating expenses from £128,900 to £473,994 reflects the investment since flotation in strengthening the group's management and infrastructure, with staff levels increasing from two to 14 during the year.
The deferred subscription revenue means that losses in the profit and loss account are not therefore necessarily reflected by the cash position. Forecast cash losses for 2001 are such that the group remains on target to reach cash break-even without needing to raise further funds. Cash flow for Q1 2001 is ahead of this target. Indeed, once new titles achieve a critical mass, the overall cash flow of the business depends largely on the controllable balance between investing in acquiring new subscribers and maintaining high-value renewing subscribers paying in advance.
OPERATING DIVISIONS
The part-year from April to November 2000 saw significant progress in all three divisions.
Peak Performance division
The most significant development for Peak Performance was the attempt to build up direct mail as a marketing channel in a sector traditionally poorly-served for databases. This investment in time and money has created a significant asset for the future as well as helping Peak Performance achieve 4,000 new subscriptions for the third successive year.
After a number of market tests, Sports Injury Bulletin was launched in August 2000. SIB is a higher-margin title than Peak Performance, aimed more at the professionals that prevent and treat sports injuries than the athletes themselves.
Optimus division
In a high-energy six months following the acquisition of Optimus Publishing Ltd, your company launched four new titles and completed the assimilation of Cash for Schools, which was acquired as part of Lottery Monitor Ltd. Early marketing and price tests in the summer of 2000 created a number of successful new techniques which could be repeated on a larger scale in the autumn.
Lottery Monitor division
Lottery Monitor Ltd was acquired on 31 July 2000. Almost immediately its reputation as the leading brand name in National Lottery information was confirmed by the controversy surrounding the Lottery Commission's various announcements on the destination of the next Lottery operator's licence: over the course of a week, the Lottery Monitor editor and other representatives briefed and provided interviews for over 30 national and international news organisations.
CURRENT TRADING HIGHLIGHTS
New subscription orders on Peak Performance up 206% on Q1 2000
First Lottery Monitor regional conference sold to capacity
Cash flow for Q1 ahead of target
Trading in the first quarter of this year has been encouraging in all divisions.
Peak Performance
Our investment last year in building up a prospect database of 70,000 competitive sportspeople, trainers, coaches, physios and other professional therapists has paid off by adding a new direct mail marketing channel to the existing successful mix. That has had an immediate impact in the number of subscription orders received in Q1, which has increased by 206% compared to the corresponding period in 2000. An increasing number of these orders are derived from Peak Performance's web-site, which now generates c 8% of all new subscriptions.
Optimus
The marketing efforts of the last quarter of 2000, particularly around new launches, have resulted in a strong cash performance in Q1, which also reflects the reliable pay-up rates to be expected in the education market
Lottery Monitor
The first subscriptions marketing efforts since acquisition have been very encouraging, but the strength of the Lottery Monitor brand has been best demonstrated by the first regional lottery conference, to be held in the south-west of England in early April, for which delegate places have been sold to capacity. The business's cross-selling potential is illustrated by the fact that 75% of all subscribers in the region have bought delegate places, yet the great majority of delegates are neither existing subscribers nor previous attendees of other Lottery Monitor events. Further regional conferences are now planned for the autumn as well as the well-established national conference to be held in London in June, now in its fifth year.
FUTURE PROSPECTS
The Group has two important strengths for a period of potential economic downturn. First, the Group is, for a media company, unusual in being relatively unaffected by reduced advertising spend – indeed, it may benefit from lower marketing costs. Second, the types of markets in which the business operates are likely to be less affected by the general economic cycle.
Education spending overall is set to increase over the foreseeable future and the continuing devolution of education management feeds the demand for management support information at both school and Local Education Authority levels.
Likewise, funding from the National Lottery is set to continue to form an essential part of local and regional authorities' strategic planning throughout the period of the new National Lottery operator's licence and beyond. As political priorities change and new programmes are developed to distribute lottery funds the need for the high-quality information and statistical support that Lottery Monitor provides is likely to remain undiminished.
The Peak Performance division delivers sports science products to both professionals and consumers. Not only can we expect continuing growth in sports and leisure activities, the profile and perceived importance of sports science in improving fitness and preventing injury has become established across the world. Peak Performance has an excellent opportunity to enhance growth in the UK by adding new overseas markets: already Australia has been successfully tested and a mirror publishing operation established. Other markets will be tested through the course of the year. In addition, the growing database creates additional high-margin revenue opportunities to support the high-quality subscriptions revenue, which enjoys good renewal rates.
Despite the substantial and profitable opportunities that your Board sees arising from the organic growth of existing businesses, the Group is still actively seeking acquisitions - particularly in areas related to the existing markets of sport, health, education and the public sector.
The last year has seen substantial progress in converting the potential described at the time of the flotation into delivered performance. We look forward to the future with confidence.
Nigel Wray
Chairman
29 March 2001
Julian Turner
Chief Executive
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