Electric Word plc
Interim Report
For the half-year ending 31 May 2002
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.
|
Cash balance |
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.
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.
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.
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.
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.
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.
|
P&L: Losses per quarter
|
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.
|
Group Paid Subscriptions
|
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.
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
|
|
|
6 months ending 31 May 2002 (unaudited) £ |
6 months ending 31 May 2001 (unaudited) £ |
Year ending 30 November 2001 (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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 May 2002 (unaudited) £ |
31 May 2001 (unaudited) £ |
30 November 2001 (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 |
|
|
|
|
|
|
|
|
|
|
|
|
6 months ending 31 May 2002 (unaudited) £ |
6 months ending 31 May 2001 (unaudited) £ |
Year ending 30
November 2001 |
