ELE.L Regulatory News (ELE)

RNS Number : 1850H

Electric Word PLC

16 February 2010

 

 

 

16 February 2010

 

ELECTRIC WORD PLC

Preliminary Results to 30 November 2009

 

Electric Word, the specialist information publisher, announced today results for the year ended 30 November 2009.

 

·; Revenue of £16.5m down 5% following restructure of My Child business which has resulted in higher profits but off a lower revenue base

 

·; Excluding My Child, revenue of £16.0m up 2% driven by increased event activity

 

·; Profit improvements in specialist consumer division lifts Group operating margin* to 13% (2008: 12%)

 

·; Adjusted profit before tax* up 8% to £1.9m

 

·; Whilst diluted earnings per share is up 115%, adjusted earnings per share* is down 7% following placing in year

 

·; Cash generation from operations up 244% as working capital demands from the 2007 acquisitions reduce

 

·; Current trading is in line with the Board's expectations for 2010

 

·; Future opportunities for organic and acquired growth

 

·; Placing in August 2009 raised £2.5m (net of costs) which has reduced debt and allowed the Group to concentrate on market opportunities

 

Julian Turner, Chief Executive of Electric Word, commented:

"2009 was a significant year for Electric Word. The Group had notable successes in repaying the majority of its debt and increasing its adjusted profit before tax* result by 8% to £1.9m, whilst also beginning to invest in organic opportunities.

 

The Board therefore remains positive across the Group into 2010 and intends to continue to balance careful cost management across its existing product portfolio with investment to drive future organic growth."

 

Financial summary (£'000)	2009	2008	Change
Revenue	16,481	17,335	(5)%
Gross Profit	7,431	7,890	(6)%
Adjusted EBITDA*	2,249	2,121	6%
Depreciation	(182)	(128)
Adjusted EBITA*	2,067	1,993	4%
Adjusted profit before tax*	1,938	1,790	8%
Less: amortisation and impairment	(1,137)	(1,367)
Less: restructuring costs / non-recurring gains	(295)	(319)
Less: notional accounting charges	(151)	(313)
Profit / (loss) before tax (PBT)	355	(209)	270%
Diluted earnings per share	0.04p	(0.26)p	115%
Adjusted diluted earnings per share*	0.84p	0.90p	(7)%
Cash flow from operating activities before interest and tax	574	167	244%
Cash balance	704	340	107%

 

 

*Adjusted numbers, as set out in note 5 of the preliminary announcement, exclude amortisation and impairment of goodwill and intangible assets, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, the use of tax losses and tax credits from recognition of tax losses, and notional accounting charges. The amount for notional accounting charges is not a cash item and encompasses both the unwinding of discounts on preference shares and provisions and the charge for share based payment costs. The adjusted earnings per share number is fully dilutedusing a weighted average number of shares.

 

ENDS

 

 

Julian Turner, Chief Executive
Electric Word	020 7954 3470
Andrew Potts Panmure Gordon   Nicola Biles	020 7459 3600
Financial Dynamics	020 7831 3113

 

Notes to Editors

 

Electric Word plc is a specialist media company operating in a range of attractive and information hungry niche markets. That information is provided in a wide range of formats through three divisions:

 

·; Professional education:serves the public sector through professional communities in schools and other institutions, including school leaders and managers, special needs and speech therapy professionals and teachers - primarily in the UK.

·; Sport business: is a Business to Business international information provider offering insight and analysis into both the business of sport, for international sports federations, brands and sponsors, broadcasters and media, major event organisers, and the online gaming industry, for both the affiliates that market the gaming sites and the industry itself.

·; Specialist consumer:is in the Business to Consumer media and currently covers both sport, aimed at competitive athletes and coaches, and education, providing information for parents to support their children's educational development.

 

The range of products and services offered to these communities include subscription content, magazines, websites, events, books, special reports and bespoke research and publishing. In 2009 65% of revenue came from selling content (2008: 67%), which included 26% from subscription revenue (2008: 25%), and 35% came from selling access to these communities (2008: 33%) in the form of advertising and sponsorship, exhibition space at events, bespoke publishing and sales of third-party products.

 

The Company was founded in 2000 and has grown steadily through a combination of organic growth and acquisitions, of which it has made 14 so far. With net debt of only £1.4m and adjusted EBITDA* of £2.1m the Directors believe it is well capitalised.

 

Electric Word is characterised by a highly analytical approach based on detailed marketing reporting and financial modelling to ensure that investment and effort are clearly focused on the areas of greatest return.

 

 

CHAIRMAN'S STATEMENT

For the year ended 30 November 2009

 

 

Dear fellow shareholders,

 

2009 was a significant year for Electric Word. The Group had notable successes in repaying the majority of its debt and increasing adjusted profits before tax* by 8% against the backdrop of a tough trading environment while continuing to invest in organic opportunities.

 

Net debt (as defined in the Financial Review below) at November 2008 of £4.9m has been reduced in the year to £1.4m by a combination of cash generated in the business, a share placing and the conversion by the Company, at a premium, of the class 'A' preference shares. The share placing in August raised £2.5m net of costs and the Group by that stage had already paid much of the inherited creditors and all of the deferred consideration from its two major acquisitions at the end of 2007 out of operating cash it had generated. This leaves the Group with net debt of less than the adjusted profits before tax* achieved in 2009. The Group has also successfully extended its remaining bank loan, a revolving credit facility for £1.5m, out until May 2011 and on the same interest and covenant terms.

 

The placing has inevitably diluted the earnings per share ('eps'). Adjusted eps* is down 7% despite higher profits due to the increased weighted average number of shares following this placing. The 2010 eps will reflect the full impact of the increase in share capital. The effect of this higher share base has been shown in a table in the financial review in the Chief Executive's statement.

 

The placing does leave the Group in a position of financial strength, from which it can now actively consider organic and acquisition investment opportunities. The Group has already started the investment cycle, with development spend undertaken in the year notably on new titles for the Education books list and in a number of web based projects across all three divisions.

 

Despite this investing activity towards longer term growth, the Group's adjusted profit before tax is 8% ahead of 2008, through both improved operating margins and lower interest charges following the lower rates and reduced debt levels. The improved margins have come despite, and partially as a result of, a revenue fall in the year as lower margin activities and products have been cut as part of the Group's on-going responsiveness to market information and changes.

 

One particular area of revenue contraction is My Child where the restructuring detailed last year, including the closure of a loss-making print magazine, has resulted in £1.1m lower revenues, but the operating loss and restructuring costs of 2008 have been converted into a small operating profit this year. The My Child turnaround coupled with a good year for the Sports Performance business sees strong profit growth in the Specialist Consumer division.

 

Just as significantly, the work conducted in 2009 to develop areas of sustainable profitable activity have indicated strong development potential for My Child and other niche online consumer sites. As a result, in 2010 we expect to make a significant investment in My Child to support the continued growth in site traffic and paid content and advertising sales and then to roll out this model into other new consumer websites across 2010 and 2011.

 

In the Sport Business division revenue and profits were grown with the events aimed at the iGaming affiliate space having a large impact here, but also with advertising revenue increasing year on year against the difficult macro environment for such spend. The Professional Education division has seen lower profits as indicated in the half year announcement with some closures of mature titles and a tightening of the commerce market affecting revenue and lower margins with investment in book lists adding to that decrease at the profit line. The outlook for the division however remains promising as the challenges of an election year and cuts in Government spending in education are not expected to have a significant impact on our business and we expect that new opportunities will continue to develop.

 

The Board therefore remains positive across the Group into 2010 and intends to continue to balance careful cost management across its existing product portfolio with investment to drive future organic growth.

 

The Board would like to thank the staff in all of Electric Word's divisions, as well as our external experts and partners, for their efforts and successes through 2009. Amidst the challenges that 2010 will undoubtedly pose, it also offers much to look forward to and the Board believes Electric Word has never been in a stronger position to take advantage of its opportunities.

 

Peter Rigby

Chairman

15 February 2010

 

 

CHIEF EXECUTIVE'S STATEMENT

For the year ended 30 November 2009

 

 

Revenue by activity

 

£'000	2009		2008
Subscriptions	4,291	26%	4,249	25%
Event delegates	2,382	15%	2,184	12%
Books and reports	4,015	24%	5,266	30%
Sales of content	10,688	65%	11,699	67%
Advertising, sponsorship and exhibitions	2,980	18%	2,608	15%
Bespoke publishing services	487	3%	459	3%
Commerce	2,326	14%	2,569	15%
Sales of access to communities	5,793	35%	5,636	33%
Total	16,481	100%	17,335	100%

 

 

Profit by division

 

£'000	2009	2008	%
Professional education
Revenue	10,569	10,668	-1%
Adjusted EBITA*	1,748	1,966	-11%
Margin	17%	18%
Sport business
Revenue	4,272	3,832	11%
Adjusted EBITA*	772	748	3%
Margin	18%	20%
Specialist consumer
Revenue	1,640	2,835	-42%
Adjusted EBITA*	368	105	250%
Margin	22%	4%
Central Group costs
Adjusted EBITA*	(821)	(826)	1%
As % of Group revenue	5%	5%
Total Group
Revenue	16,481	17,335	-5%
Adjusted EBITA*	2,067	1,993	4%
Margin	13%	12%
Net interest payable*	(129)	(203)	36%
Adjusted PBT*	1,938	1,790	8%

 

* Adjusted numbers, as set out in note 5 of the preliminary announcement, exclude amortisation and impairment of goodwill and intangible assets, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, the use of tax losses and tax credits from recognition of tax losses, and notional accounting charges. The amount for notional accounting charges is not a cash item and encompasses both the unwinding of discounts on preference shares and provisions and the charge for share based payment costs. The adjusted earnings per share number is fully diluted using a weighted average number of shares.

 

In 2009 Electric Word grew its trading profit (adjusted EBITA*) by 4% despite a 5% reduction in revenue as it removed less profitable business activities, sacrificing revenue for margin. This was particularly in the Specialist Consumer division following the My Child restructuring in 2008, but can also be seen in the Professional Education division, albeit offset there by investment in new products notably on the book list.

 

Excluding the My Child business and therefore its restructuring and revenue reduction impact, underlying revenues grew by 2% across the Group.

 

Professional education division

 

£'000	2009	2008	Change
Revenue	10,569	10,668	-1%
Adjusted EBITA*	1,748	1,966	-11%
Profit margin	17%	18%

 

Revenue marginally off reflecting tough commerce market conditions with profits off by 11% after investment in building book lists

 

Revenue is down by 1% on the prior year but has been flat by comparison in the second half of this year. The story behind this remains, as described at the half year, that growth in book sales and event revenues has been more than offset by a drop in commerce revenues as the market was seen to tighten, especially in the earlier part of the year, and a shrinkage of subscription income from 2008 closures and on some mature titles.

 

2009 also demonstrated the resilience and strength of the valuable niches in education information. Electric Word's portfolio is focused on school management, special needs, behaviour and child protection, all areas of continuing change and importance. The strong performance of the conferences business continued through to the end of the year while the margin in the books business weakened as a result of investment in the forward publishing list to build scale. Despite this investment, and disappointing sales in the Incentive Plus catalogue business, the divisional margin was sustained at a creditable 17%, in the middle of the Board's target range of 16-18%. The margin in 2008 had benefitted from some cost reduction and improvement in marketing return on investment as a result of the increase in on-line marketing. These benefits remain but some of this margin is now being reinvested back into the products.

 

The main area of investment is in the Optimus book list. Optimus has a mature subscription newsletter and event range aimed at the management levels in the schools, and is steadily commissioning and publishing a book list to support that market. The management books area was loss making in the year but the division has experience of what a mature book list can produce through its Speechmark business which has a strong list of high-quality, practical and innovative resources for the Education, Health and Social Care sectors which are published for speech therapists, special needs co-ordinators and teachers, care workers and mental health professionals. That business has over 300 titles on its list, with some over 20 years old, and enjoys a higher profit margin as a result. The management books tend to be higher priced and require significant initial resources in content and production but the benefit of this approach was highlighted by the highly successful November launch of the Child Protection Handbook. With further organisational change expected after the forthcoming election, the opportunity for publishing in this area of professional development continues to appeal and margin improvement can be expected as the list of established titles grows.

 

The other significant challenge being faced is on the Optimus subscriptions side. This mature business is now seeing some shrinkage on its print titles but the market is also now at the stage where on-line subscription products can be developed as has already been achieved in Electric Word's other markets. Websites for each paper newsletter were successfully launched in 2009 and the transition to a richer and deeper digital offering can be expected to deliver higher margins and offer substantial opportunities to increase the range and value of the management information that schools are currently taking. This transition has already taken place in both the Specialist Consumer division and in business-to-business products such as TV Sports Markets. As a result the medium-term prospects for renewable subscription revenues and profits in the Education business represent a significant and exciting area of future growth.

 

The Group chose to reduce its marketing investment in 2009 in the Incentive Plus catalogue business, which retails third-party products, to reflect weaker demand for some classroom resources. However the time was used to redevelop and re-launch its catalogue, with a new, larger catalogue developed and designed in 2009 to support sales in 2010, which are also expected to benefit from the growth in sales from its on-line shop. The increase in e-commerce as a proportion of total sales is expected to continue through 2010 which will eventually help improve margins in the business but in the short-term the catalogue will remain the main marketing tool.

 

The Optimus professional development events have had a very strong year, increasing both revenue and profits with the majority of the profit increase attributable to higher margins as a result of increasing delegate sales in the strongest events. Whilst the forthcoming general election and expected cuts in government spending on education is expected to be a challenge, as in other areas of the division, forward bookings remain strong and the timing of forthcoming events suggests that the business is likely to be able to avoid a significant impact from pre- and post-election policy stagnation; indeed the team is well placed to pick up on the opportunities that a change in government or policy are likely to create.

 

2010 is therefore anticipated to be a year of both challenge and opportunity through which the division will continue to cement its market-leading position in an important long-term niche while continuing to invest in new products and initiatives to support future growth.

 

Sport business division

 

£000	2009	2008	Change
Revenue	4,272	3,832	11%
Adjusted EBITA*	772	748	3%
Profit margin	18%	20%

 

Revenue up by 11% as the number of iGaming events increased successfully with divisional margin maintained at a high level

 

The division has grown revenue by 11% year on year, an achievement largely attained through the success and expansion of its events aimed at affiliates in the on-line gaming market. It is underpinned by increases in all other revenue streams, including the advertising market - which is commendable in the current macro environment.

 

Profit margin has dipped this year as expected with the tailing off in 2008 of the very high margin contract publishing deals from 2007. The margins remain at a strong 18% level however despite the expansion of the team on the iGaming products to maximise returns from the opportunities seen there.

 

Both of the Group's two business-to-business ("B2B") sectors, the businesses of sport and online gaming, have performed well in the year and hold well-respected positions in their respective niche communities. There would however clearly be a benefit to the Group of adding sectors here to scale up its B2B activities and to take advantage of the skills that have been developed across a broad range of revenue streams.

 

Specialist consumer division

 

£000	2009	2008	Change
Revenue	1,640	2,835	-42%
Adjusted EBITA*	368	105	250%
Profit margin	22%	4%

 

My Child business restructured removing revenue but turning the previous year's sizeable loss into a small profit underpinned by strong performance in the sport sector

 

The deliberate 42% contraction in the division's revenue following the restructure of My Child in 2008 was accompanied by a £250,000 increase in operating profit to achieve a margin high of 22%. That headline number demonstrates the extent of the turnaround achieved in 2009 but is at the high end of the long-term target margin for the business. As important as the profit improvement has been, the underlying development will drive future growth in both of the current consumer markets albeit at the expense of margin in the shorter term.

 

In Sports Performance revenue has held up well despite the reduction in subscribers as print product offerings and marketing is scaled back and concentrated on-line, boosting the margins. The sale of specialist one-off reports has increased in the year and the advertising potential of such a large community is still to be fully realised. Its Peak Performance site (www.pponline.co.uk) had an average of 455,000 unique visitors per month ("UVM") in 2009 (2008: 435,000) and the site is re-launching as a '.com' in 2010 to boost visitor numbers in the US. The Sports Injury Bulletin site (www.sportsinjurybulletin.com) had an average of 215,000 UVM in 2009 (2008: 180,000).

 

The My Child restructure of 2008 removed the telesales route to market and the print magazine element of its offering. It left a very small team to continue to build an on-line presence, develop a community of users and monetise it as the traffic grew. This change has been a real success with the loss of 2008 turned into a small profit this year and a community that is growing fast, offering many opportunities going forwards. One recent adoption (in November) was to add a forum to the site which has quickly deepened the site's on-line presence and usage with some 25,000 posts in the first three weeks and continued high levels of activity (over 1,000 per day). It has a database of 205,000 receiving the weekly My Child e-zine and unique visitors in November of 101,000, up from 20,000 in February 2009 following a period of concentrated search engine optimization and marketing work, although the activity of that visitor base has now translated into a record 750,000 page impressions in January 2010.

 

These two business-to-consumer ("B2C") businesses employ a model which combines free and paid-for content with strong database building which it is now planned to roll out into further sectors in 2010 and 2011. This is an exciting development project for the Group and is expected to bring scale and many years of growth to this B2C division. This development will be paid for through the Group's cash generation and is targeted to be achieved without impact to the market estimates for 2010 profit.

 

Central costs

 

£000	2009	2008	Change
Adjusted EBITA*	(821)	(826)	1%
As % of Group revenue	5%	5%
Net interest payable*	(129)	(203)	36%

 

Central costs maintained at 5% of the Group's revenue with interest costs reduced as debt repaid

 

The Group has again kept its central costs at existing levels and at less than 5% of Group revenues. It does not anticipate a need to substantially increase them to manage the organic opportunities described above.

 

Net interest payable has decreased this year as a result of the decrease in the banking rates year on year and also as a function of paying down so much of its debt in 2009.

 

Outlook

 

Current trading is in line with the Board's expectations, continuing the trends of the final quarter of 2009. In January 2010 education conference bookings exceeded the record achieved in 2009, despite the fact that much of the education marketing activity in the month coincided with schools closing as a result of snow. Both the consumer online businesses achieved traffic growth on their Q4 averages in January while the same month's 2010 London Affiliate Conference attracted over 2,000 delegates from the iGaming industry and also increased revenue on 2009.

 

Following a busy 2009 when much was achieved to deliver increased financial stability across the Group and solid investment was made to facilitate organic growth opportunities, the Group is well positioned to benefit from both continued organic growth and acquisition opportunities.

 

Financial Review

 

The Group made an adjusted profit before tax* of £1.9m (2008: £1.8m) as a result of the improvement in adjusted EBITA* and the lower interest costs from both lower rates and a significant reduction in net debt through the year.

 

Net debt at the end of the year stood at £1.4m (2008: £4.9m). Debt at November 2008 of £4.9m included £1.8m of bank loans, £1.2m of other loans, £1.0m of redeemable preference shares, £0.9m of convertible class 'A' preference shares, and £0.3m of deferred consideration, net of £0.3m of cash at bank. This has been reduced in the year to under £1.4m, which is £1.5m of bank loans and £0.6m of other loans, net of £0.7m of cash at bank. This has been achieved by a mixture of cash generated in the business, a share placing and the conversion of the class 'A' preference shares. The share placing in late August raised £2.5m net of costs and the Group by that stage had already paid much of the inherited creditors and all of the deferred consideration from its two major acquisitions at the end of 2007 out of operating cash it had generated. The placing was for 74.5m ordinary shares at 3.625 pence to raise £2.75m gross of costs.

 

As a result the Group has gross debt of £2.1m at November 2009 which is less than the adjusted EBITDA* achieved in 2009. Of the gross borrowings £0.6m is due for repayment in April 2010 and the remainder is a fully drawn down revolving credit facility for £1.5m. In May 2009 the Group successfully negotiated an extension to this facility on the same interest basis and covenant testing terms so that it is now available to May 2011. The Group currently has adequate headroom over the three covenant tests, being rolling 12 month adjusted EBITDA* to exceed £1.5m and be more than 6 times net interest payable* but less than 2 times net borrowings.

 

The Group's adjusted results (note 5) allow shareholders to gain a further understanding of the trading performance of the Group. Profits are adjusted for items not perceived by management to be part of the underlying trends in the business and the related tax effect of those items.

 

£000	2009	2008	Change
Adjusted profit before tax*	1,938	1,790	8%
Less: amortisation and impairment	(1,137)	(1,367)
Less: restructuring costs / non-recurring gains	(295)	(319)
Less: notional accounting charges	(151)	(313)
Profit / (loss) before tax (PBT)	355	(209)	270%

 

The Group made a profit before tax of £355,000 (2008: £209,000 loss). Items that the result is adjusted for include impairment expenses, restructuring costs and notional interest costs (where interest has been charged under accounting guidelines on items which do not in reality suffer any interest).

 

Of the restructuring costs (note 5) in the current year approximately half relate to reviewing the refinancing options prior to the share placing and debt pay down, and the rest relate in fairly equal parts to legal costs relating to a competitor dispute and redundancy and other costs as the Group reshapes to mirror evolving market demands. In the prior year they were entirely due to the restructuring of the My Child business.

 

Amortisation and impairment includes amortisation costs of £527,000 (2008: £497,000). The impairment expenses (notes 10 and 11) of £610,000 (2008: £870,000) consists of £604,000 largely in relation to the three Special Education Publishing ("SEP") titles and £6,000 (2008: £170,000) on recognition of deferred tax asset on pre-acquisition losses from the SportBusiness Group. The Group benefited on acquisition of the SEP titles by folding existing titles in to them and avoiding closure costs. They also suffered a high carrying value of intangible assets and goodwill from the company's high net liabilities as it carried much deferred revenue which has subsequently been earned out or will be on other Group titles. This has meant that as the Group now folds two of the titles into other product offerings themselves and to reflect some lower current trading in that area it is necessary to book some impairment. In 2008: £700,000 was booked in relation to the My Child intangible asset being written down as with the business change it was no longer appropriate to carry the full value acquired going forward.

 

Impairment of goodwill and intangible assets is reviewed at least annually and more frequently when issues suggest that impairment may be necessary. All assets have been reviewed (as detailed in notes 10 and 11). Of the other assets it should be noted that all had considerable headroom of net asset value exceeding carrying value except for Incentive Plus. On that asset the Board feel that the commerce market in education has had a tough year and was already believed to be improving so no impairment was deemed necessary at this time.

 

As a result of these additional non-trading costs diluted earnings per share ("eps") is 0.04p (2008: loss (0.26)p), but on an adjusted basis reflecting underlying trading eps is 0.84p (2008: 0.90p). The decrease on the adjusted basis reflects the share placing in late August which significantly diluted the earnings to remove the majority of the Group's debt. With the placing only counting on the weighted average number of shares basis for a quarter of the year, the full impact would reduce the eps further still. Much of the dilution is applicable to the prior year as it cleared nil interest debt from acquisition deals pre-dating 2008. Both diluting the 2009 numbers on a full year equivalent basis and diluting the 2008 number for the conversion of nil coupon debt in 2009 are reflected in the following table on an adjusted basis*:

 

	Note	2009	2009	2008	2008
Adjusted earnings figure*	5		£1,458,000		£1,398,000
		Number	Earnings per share (p)	Number	Earnings per share (p)
Basic number of shares at 30 November 2008 (note 26)		144,964,441	1.01	144,964,441	0.96
Adjustment in respect of SIP shares	9	(859,007)		(1,096,794)
Dilutive effect of share options and warrants	9	7,428,294		10,366,167
Exercise of share options in 2009		2,700,000		-
		154,233,728	0.95	154,233,814	0.91
Redemption of preference shares (£982,500 at 3.625p)		27,103,448		27,103,448
Conversion of class A preference shares		6,603,773		6,603,773
		187,940,949	0.78	187,941,035	0.74
Further shares placed in 2009 to reduce interest bearing debt		47,379,311
Diluted number of shares at 30 November 2009		235,320,260	0.62	235,320,260	0.59
Weighted average number of shares in period (fully diluted)	9	174,501,566	0.84	153,703,854	0.90

 

Taking the impact of the placing and all other share issues as if they had taken place on the first day of the financial year and including dilutive impact of the share options and warrants, the eps would be 0.62 pence (2008 based on the same number of shares: 0.59 pence).

 

 

Julian Turner

Chief Executive

15 February 2010

 

CONSOLIDATED INCOME STATEMENT

For the year ended 30 November 2009

 

 

		2009	2008
	Notes	£'000	£'000
Revenue	3	16,481	17,335
Cost of Sales - Direct costs		(6,434)	(5,892)
Cost of Sales - Marketing expenses		(2,616)	(3,553)
GROSS PROFIT	3	7,431	7,890
Other operating expenses		(5,278)	(5,977)
Depreciation expense		(182)	(128)
Amortisation expense		(527)	(497)
Total administrative expenses		(5,987)	(6,602)
OPERATING PROFIT		1,444	1,288
Impairment expense		(610)	(870)
Restructuring costs	5	(295)	(340)
Non-operating income and expense	5	-	21
Finance costs	6	(188)	(350)
Investment income	7	4	42
PROFIT / (LOSS) BEFORE TAX		355	(209)
Taxation	8	(206)	(117)
PROFIT / (LOSS) FOR THE FINANCIAL YEAR		149	(326)
Attributable to:
- Equity holders of the parent		76	(367)
- Minority interest		73	41
		149	(326)
EARNINGS / (LOSS) PER SHARE
Basic	9	0.05p	(0.26)p
Diluted	9	0.04p	(0.26)p

 

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 30 November 2009

 

		Group
		2009	2008
	Note	£'000	£'000
Profit / (loss) for the year		149	(326)
Tax taken direct to reserves	12	12	(366)
Total recognised income and expense for the year		161	(692)
Attributable to:
- Equity holders of the parent company		88	(733)
- Minority interests		73	41
		161	(692)

 

 

CONSOLIDATED AND COMPANY BALANCE SHEET

As at 30 November 2009

 

			Group
			2009	2008
		Notes	£'000	£'000
ASSETS
Non-current assets
Goodwill		10	8,301	8,811
Other intangible assets		11	1,856	2,465
Property, plant and equipment			293	364
Deferred tax assets		12	711	746
			11,161	12,386
CURRENT ASSETS
Inventories			1,304	1,223
Trade and other receivables			3,560	3,253
Cash and cash equivalents		18	704	395
			5,568	4,871
TOTAL ASSETS			16,729	17,257
EQUITY AND LIABILITIES
Capital and Reserves
Called up ordinary share capital		15	2,288	1,450
Preference share capital		15	-	875
Other reserve		16	-	(454)
Share premium account		16	5,220	3,106
Merger reserve		16	105	105
Reserve for own shares		16	(103)	(103)
Reserve for share based payments		16	472	364
Retained earnings		16	59	(17)
Equity attributable to equity holders of the parent			8,041	5,326
Minority Interest		17	31	72
TOTAL EQUITY			8,072	5,398
Non-current liabilities
Borrowings			1,500	2,201
Deferred tax liabilities		12	511	676
Obligations under finance leases			-	7
Preference shares		14	-	929
			2,011	3,813
Current liabilities
Borrowings			600	863
Current tax liabilities			246	235
Trade payables and other payables			2,502	2,794
Provisions		13	-	255
Obligations under finance leases			7	19
Deferred income			3,291	3,880
			6,646	8,046
TOTAL LIABILITIES			8,657	11,859
TOTAL EQUITY AND LIABILITIES			16,729	17,257

 

 

P Rigby Chairman

J Turner Chief Executive

15 February 2010

 

 

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

For the year ended 30 November 2009

 

 

		Group
		2009	2008
	Notes	£'000	£'000
Operating profit		1,444	1,288
Amortisation		527	497
Depreciation		182	128
Share based payment charges		96	208
Restructuring costs	5	(295)	(340)
Operating cash flows before movement in working capital		1,954	1,781
Increase in inventories		(81)	(419)
(Increase) / decrease in receivables		(306)	10
(Decrease) / increase in payables		(993)	(1,205)
Cash flow from operating activities before interest and tax		574	167
Interest paid		(134)	(245)
Taxation paid		(315)	(206)
Cash inflow / (outflow) from operating activities		125	(284)
INVESTING ACTIVITIES
Acquisitions of subsidiaries, net of cash acquired		-	(140)
Sale of disposal option		-	21
Deferred consideration paid	13	(260)	(725)
Purchase of property plant and equipment		(111)	(181)
Purchase of intangible assets	11	(13)	(11)
Interest received	7	4	42
Net cash used in investing activities		(380)	(994)
FINANCING
Proceeds from issuance of ordinary shares	16	2,754	12
Cost of issuing shares	16	(223)
Repayments of preference shares	14	(984)	-
Proceeds of new long term borrowings		-	600
Proceeds of new short term borrowings		-	100
Repayments of borrowings		(909)	(170)
Repayments of obligations under finance leases		(19)	(40)
Net cash from financing activities		619	502
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		364	(776)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR		340	1,116
CASH AND CASH EQUIVALENTS AT END OF YEAR	18	704	340

 

 

NOTES TO THE FINANCIAL INFORMATION

For the year ended 30 November 2009

 

1. BASIS OF ACCOUNTING

 

The financial information set out in this preliminary announcement has been extracted from the group's audited statutory accounts for the year ended 30 November 2009 which will be delivered to the Registrar of Companies following the company's annual general meeting. The auditor's report on these accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under either Section 498 (2) or (3) of the Companies Act 2006.

 

Statutory accounts for the year ended 30 November 2008 have been delivered to the registrar of companies and the auditors' report on these accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under either Section 498 (2) or (3) of the Companies Act 2006.

 

The financial information set out in this preliminary announcement does not constitute the group's statutory accounts for the year ended 30 November 2009. The financial information presented in this preliminary announcement has been prepared using accounting policies consistent with International Financial Reporting Standards as adopted by the European Union ('IFRS'). These accounting policies are as set out in the annual report for the year ended 30 November 2008.

 

This preliminary announcement was approved by the board of directors on 15 February 2010.

 

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

Within the consolidated financial statements there are a number of areas where management has to include their best estimate of likely outcomes based on their first hand knowledge of the markets and situation. The preparation of consolidated financial statements will require management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these consolidated financial statements, the significant judgements made by management in applying the accounting policies and the key sources of estimation uncertainty were:

 

·; Valuation and asset lives of intangible assets - which are based on management's considered opinion of what has been bought and what value it is to the Group in the future. Valuation methodologies include the use of discounted cash flows, revenue and profit multiples, whilst asset lives are estimated on the type of asset acquired and range between three and ten years;

·; Impairment of assets - assets are subject to at least annual impairment reviews and testing, and the running of these tests and the numbers that form part of them will be based as far as possible on actual known results but will by nature include predictions of future outcomes. The asset carrying values are compared to estimates of the assets' value in use. This value in use is calculated by looking at the cash generating units underlying the assets and management estimating the future cash flows after applying a suitable discount factor. The estimates of future cash flows are based on detailed forecasts produced by management. Assumptions on the goodwill assets are given in note 10;

·; Provisioning: both trade receivables for bad debt and inventories for returns and obsolescence are reviewed for potential write down. The provisions created to cover these areas are based on managements' experience and considered opinion of the assets' current value;

·; Valuation of share based payments - which are calculated from modelling including estimates of non-transferability, exercise restrictions, and behavioural considerations, including such factors as the volatility of the Company's share price.

 

3	REVENUE AND COST OF SALES

 

An analysis of the Group's income is as follows:

	2009	2008
	£'000	£'000
Revenue
Sale of goods	11,120	12,543
Rendering of services	5,361	4,792
	16,481	17,335
Cost of sales
Change in inventories of finished goods	80	363
Raw materials and consumables used	(6,514)	(6,255)
Marketing costs	(2,616)	(3,553)
	(9,050)	(9,445)
Gross profit	7,431	7,890

 

 

 

4	SEGMENTAL ANALYSIS

 

Segmental information is presented in respect of the Group's business divisions. This primary format is based on the Group's management and internal reporting structure.

 

The primary format consists of three market sectors: professional education (serving professional communities in schools and other institutions), sport business (for the professional communities supporting the sport and on-line gaming industries), and specialist consumer (for individual needs in both sport - competitive athletes and coaches - and education - parents looking to support their children's educational development). The group function represents central PLC costs which are not directly related to the sector trading and are not recharged.

 

	Revenue		Segment result: profit / (loss) from operations
Analysis by market sector	2009	2008	2009	2008
	£'000	£'000	£'000	£'000
Professional education	10,569	10,668	1,303	1,555
Sport business	4,272	3,832	739	625
Specialist consumer	1,640	2,835	240	(57)
Group function	-	-	(838)	(835)
	16,481	17,335	1,444	1,288

 

Operating profit is defined as profit before tax and excludes impairment expense, restructuring costs, non-operating income and expense, finance costs and investment income.The following primary sector analysis under the adjusted definition of operating profit (note 5) has been made to allow shareholders to gain a further understanding of the trading performance of the Group:

 

		2009	2008
		£'000	£'000
Professional education		1,748	1,966
Sport business		772	748
Specialist consumer		368	105
Group function		(821)	(826)
		2,067	1,993

 

	Capital additions		Depreciation / amortisation		Impairments (notes 10, 11)
	2009	2008	2009	2008	2009	2008
	£'000	£'000	£'000	£'000	£'000	£'000
Professional education	44	15	426	357	604	-
Sport business	31	34	24	68	6	170
Specialist consumer	17	112	140	112	-	700
Group function	19	20	119	88	-	-
	111	181	709	625	610	870

 

	Assets		Liabilities
	2009	2008	2009	2008
	£'000	£'000	£'000	£'000
Professional education	5,290	6,907	3,518	3,558
Sport business	1,728	1,329	1,053	910
Specialist consumer	371	373	410	1,370
Group function	8,629	7,902	812	2,020
Net debt and taxation (current and deferred)	711	746	2,864	4,001
	16,729	17,257	8,657	11,859

 

 

The following table provides an analysis of the Groups' revenue by geographical segment:

 

Analysis by geographical segment	2009	2008
	£'000	£'000
United Kingdom	13,648	14,644
Rest of Europe	1,363	1,071
Rest of the World	1,470	1,620
	16,481	17,335

 

Segment assets, liabilities and additions to property, plant, equipment and intangible assets are all allocated to the UK, as any that are located in other geographical locations make up less than 10% of the total assets, liabilities and additions to property, plant, equipment and intangible assets of all geographical segments.

 

There are no inter-segmental sales and no discontinued operations.

 

5	ADJUSTED PROFIT

 

The adjusted profits have been made to allow shareholders to gain a further understanding of the trading performance of the Group. Profits are adjusted for items not perceived by management to be part of the underlying trends in the business and the related tax effect of those items.

 

Adjusted numbers exclude amortisation of intangible assets, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, deferred tax asset or liability movements recognised in the income statement and notional accounting charges. The amount for notional accounting charges encompasses the unwinding of discounts on preference shares and provisions and share based payment costs.

 

The adjustment adds back items which have no cash impact or are not trade related and of a non-recurring type. All of the items have no cash impact, except for the non-recurring gain and restructuring costs which are excluded as they are not in the normal course of trading and are not recurring.

 

The restructuring costs in 2009 relate to three activities. The Group repaid a substantial part of its debt in the year following a placing of shares. Costs totalling £140,000 are included here in relation to the strategic review of debt, financing options and transaction costs which were not fundamentally part of the placing and so are not included in share premium. The Group has also continued to evolve to mirror the markets it operates in and has suffered product closure and redundancy costs of £80,000. The Group has also had a legal case with a competitor which has resulted in settlement and legal costs of £75,000 being provided.

 

The restructuring costs in 2008 of £340,000 are all in My Child Limited and relate to the decision in August 2008 to close the My Child call centre and cease publication of its print magazine, moving the business on-line, as well as some transitional expenditure in replacing existing management and operational systems.

 

The non-recurring gain made in 2008 relates to sale of an option for a third party to potentially acquire part of the business (the Sports Performance section trading through P2P Publishing Limited).

 

Components of the 2009 and 2008 restructuring costs and non-recurring gain were considered to be taxable items for corporation tax and thus attributable tax has been included in the period at 28% of their value. All other adjusting items do not have a tax affect on the Group.

 

		2009	2008
	Note	£'000	£'000
OPERATING PROFIT FOR THE YEAR		1,444	1,288
Amortisation of intangible assets		527	497
Notional accounting charges - share based payment charges		96	208
Adjusting items to operating profit		623	705
Adjusted operating profit for the year		2,067	1,993
Depreciation		182	128
Adjusted earnings before interest, tax, depreciation and amortisation for the year		2,249	2,121
PROFIT / (LOSS) BEFORE TAX FOR THE YEAR		355	(209)
Adjusting items to operating profit		623	705
Impairment expense	10, 11	610	870
Restructuring costs		295	340
Non-recurring gains		-	(21)
Notional accounting charges - unwinding of discounts	6	55	105
Adjusting items to profit before tax		1,583	1,999
Adjusted profit before tax for the year		1,938	1,790
PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT		76	(367)
Adjusting items to profit before tax		1,583	1,999
Attributable tax expense on adjusting items		(83)	(89)
Exclude movements on deferred tax assets and liabilities taken to income statement	12	(118)	(145)
Adjusting items to profit for the year		1,382	1,765
Adjusted profit for the year		1,458	1,398

 

6	FINANCE COSTS

 

	2009	2008
	£'000	£'000
Bank loans and overdrafts	127	235
Finance lease interest	6	10
Unwinding of discount on preference shares and provisions	55	105
	188	350

 

7	INVESTMENT INCOME

 

	2009	2008
	£'000	£'000
Bank interest receivable	4	42

 

 

8

TAXATION

 

	2009	2008
	£'000	£'000
Current tax:
UK corporation tax on profits of the period	359	253
Adjustment to prior year	(45)	(1)
Overseas tax suffered	10	10
Total current tax	324	262
Deferred taxation: origination and reversal of timing differences (note 12)	(118)	(145)
Tax on profit on ordinary activities	206	117

 

UK corporation tax is calculated at 28% (2008: average rate of 29%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. The total tax charge can be reconciled to the accounting profit as follows:

 

Factors affecting tax charge for the period	2009		2008
	£'000	%	£'000	%
Profit / (loss) on ordinary activities before tax	355		(209)
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 28% (2008 - 30% for 4 months and then 28%)	99	28	(60)	29
Effect of:
Expenses not deductible for tax purposes (principally amortisation and impairment)	149	42	62	(30)
Recognition of tax losses for prior years	(34)	(10)	(209)	100
Tax losses not recognised	-	-	261	(125)
Over provision in prior year	(45)	(12)	(1)	-
Share based payments	27	7	54	(26)
Overseas taxation	10	3	10	(4)
Tax expense and effective rate for the year	206	58	117	(56)

 

 

 

9	EARNINGS / (LOSS) PER ORDINARY SHARE

 

The calculation of earnings / (loss) per ordinary share is based on the following:

		2009	2008
		Number	Number
Weighted average number of shares		167,932,279	144,434,481
Adjustment in respect of SIP shares		(859,007)	(1,096,794)
Weighted average number of shares used in basic earnings per share calculations		167,073,272	143,337,687
Dilutive effect of share options		1,114,970	3,320,637
Dilutive effect of warrants		6,313,324	7,045,530
Weighted average number of shares used in diluted earnings per share calculations		174,501,566	153,703,854

 

		2009	2008
		£'000	£'000
Basic and diluted earnings		76	(367)
Adjustment to earnings (Note 5)		1,382	1,765
Adjusted basic and diluted earnings figure		1,458	1,398
Earnings per share
Basic earnings / (loss) per share		0.05p	(0.26)p
Diluted earnings / (loss) per share		0.04p	(0.26)p
Adjusted earnings per share
Adjusted basic earnings per share		0.87p	0.97p
Adjusted diluted earnings per share		0.84p	0.90p

 

 

10

GOODWILL

 

	Group
	2009	2008
	£'000	£'000
Cost
1 December	9,378	8,861
Acquisition of subsidiaries	-	504
Additional goodwill recognised during the year relating to prior year acquisitions	-	13
30 November	9,378	9,378
Accumulated impairment losses
1 December	567	397
Impairment losses for the year	510	170
30 November	1,077	567
Carrying amount
30 November	8,301	8,811

 

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units ('CGU') that are expected to benefit from that business combination. The CGU are consistent with the segments identified in Note 4. The carrying amount of goodwill has been allocated as follows:

	2009	2008
	£'000	£'000
Professional education	4,392	4,896
Sport business	2,122	2,128
Specialist consumer	1,787	1,787
Group overheads	-	-
	8,301	8,811

 

The group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

 

The recoverable amounts of the CGU are determined from value in use calculations. The key assumptions across the CGU for the value in use calculations are those regarding the discount rates and growth rates for the period. Management estimates discount rates using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecasts and long-term growth in gross domestic product.

 

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next 2 years and extrapolates cash flows for a further 18 years based on estimated long-term growth in gross domestic product of 3%. The rates do not exceed the average long-term growth rate for the relevant markets. The post-tax rates used to discount the cash flows for all CGU are 8.37% (2008: 8.21%).

 

At 30 November 2009 and 30 November 2008, the carrying amounts of goodwill for CGUs were tested for impairment. The recoverable amounts were calculated based on future projected cash flows discounted at rates as disclosed above, which represented the Group's weighted average cost of capital, plus a premium for risk. The weighted average cost of capital for the Group at 30 November 2009 was estimated as 6.51% (2008: 7.10%) and was relevant and used on all CGU.

 

In 2009 one CGU has been deemed to be impaired. Special Education Publishing Limited, value of £504,000, is written off to reflect some lower trading expectations across the titles but also the fact that two titles are now folded into other of the Group's product offerings. The other CGUs are not deemed to be impaired and would require substantial decreases in their 2011 forecast cash flows to be calculated as impaired, the least of which is My Child Limited which would have to lower its 2011 forecast by 25% to be calculated as impaired. That is except for Incentive Plus Limited. This is not deemed to be impaired despite headroom of only £21,000 as it is felt that whilst trading is at a low at present it is expected to improve both in the market and from internal actions taken, not least on its marketing efforts. No impairment was required on the CGUs during the year ended 30 November 2008.

 

On considering sensitivities if the discount factor were increased by 0.5% then there would be further impairment of £76,000 all on Incentive Plus. There are no other significant factors to be considered that would cause impairment.

 

An impairment charge to goodwill of £6,000 (2008: £170,000) has been booked in the period under IFRS in relation to the acquisition of DMWSL 370 Limited. The acquired entity contained substantial unrecognised tax losses which on subsequent recognition cause an impairment of the goodwill recognised at the acquisition date.

 

 

11	INTANGIBLE ASSETS

 

	Group
	Publishing titles	Other acquired assets	Computer software	Total
	£'000	£'000	£'000	£'000
Cost
1 December 2007	2,889	185	118	3,192
Additions	663	-	11	674
30 November 2008	3,552	185	129	3,866
Additions	5	-	13	18
Disposals	-	-	(6)	(6)
30 November 2009	3,557	185	136	3,878
Amortisation
1 December 2007	74	115	15	204
Charge for the year	397	58	42	497
Impairment charge	700	-	-	700
30 November 2008	1,171	173	57	1,401
Charge for the year	467	12	48	527
Disposals	-	-	(6)	(6)
Impairment charge	100	-	-	100
30 November 2009	1,738	185	99	2,022
Carrying amount
30 November 2009	1,819	-	37	1,856
30 November 2008	2,381	12	72	2,465

 

There are no individually material intangible assets included in the publishing titles. The group tests the assets annually for impairment or more frequently if there are indications that they might be impaired.

 

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next 2 years and extrapolates cash flows for a further up to 7 years (depending on remaining asset life) based on estimated long-term growth in gross domestic product of 3%. The life of a further 7 years is deemed to be appropriate as the Group has many publishing assets with lives of this length or more in some cases, but the Group has not recognised asset lives over 10 years post acquisition to date. The rates do not exceed the average long-term growth rate for the relevant markets. The post-tax rates used to discount the cash flows for all cash generating units ('CGUs') are 8.37% (2008: 8.21%).

 

At 30 November 2009 and 30 November 2008, the carrying amounts of intangible assets for CGUs were tested for impairment. The recoverable amounts were calculated based on future projected cash flows discounted at rates as disclosed above, which represented the Group's weighted average cost of capital, plus a premium for risk. The weighted average cost of capital for the Group at 30 November 2009 was estimated as 6.51% (2008: 7.10%) and was used on all CGUs.

 

In 2009 impairment was deemed necessary on two titles, both of which were part of the Special Education Publishing Limited ('SEP') acquisition in 2008. One title is impaired to reflect some lower current market expectations across the education advertising and the other title has been folded into other of the Group's product offerings. The former title's carrying value of £435,000 is written down by £46,000 whilst the latter title's carrying value of £54,000 is written off.

 

Of the rest of the intangible assets' carrying values, £1,280,000 relates to over three hundred product title rights acquired as part of the Speechmark Publishing Limited acquisition which have been reviewed individually for impairment and are seen not to be impaired bar three titles at a cost of £15,000. £118,000 relates to the My Child Limited acquisition which was impaired last year following the restructuring detailed below but is now expected to support its carrying value with much head room over its carrying value. £32,000 relates to three titles acquired in the Smallwood Publishing Limited deal which will be fully amortised in 2010 and are not impaired.

 

If the discount factor were increased by 0.5% there would be no impact on impairment at the 2009 balance sheet date.

 

In 2008 the intangible asset from the acquisition of My Child Limited was impaired by £700,000 reflecting the restructure of the business in the period as the telesales channel was significantly downsized and the product was moved on-line with the announcement that the acquired publication was to cease.

 

 

12	DEFERRED TAX

 

	Group
	2009	2008
	£'000	£'000
Deferred tax assets
Expected to be realised in year ended 30 November 2010	454	535
Non-current	257	211
	711	746
Deferred tax liabilities
Expected to be realised in year ended 30 November 2010	(432)	(625)
Non-current	(79)	(51)
	(511)	(676)
Net position at 30 November	200	70

 

 

	Capital allowances	Tax losses	Goodwill and Intangible assets	Other	Total
	£'000	£'000	£'000	£'000	£'000
1 December 2007	5	726	(782)	515	464
(Charge) / credit to income for the year	(3)	(71)	296	(77)	145
(Charge) / credit to equity for the year	-	-	-	(366)	(366)
Acquisition	-	11	(184)	-	(173)
30 November 2008	2	666	(670)	72	70
(Charge) / credit to income for the year	-	(89)	161	46	118
(Charge) / credit to equity for the year	-	-	-	12	12
30 November 2009	2	577	(509)	130	200

 

There are accumulated losses of £11,800,000 (2008: £12,400,000) which, subject to agreement with the HM Revenue & Customs, are available to offset future profits of the same trade. Of this the Group has not recognised tax losses of £9,740,000 (2008: £9,807,000) as the timing of the recovery of the assets are uncertain.

 

 

13	PROVISIONS

 

The provisions relate to deferred consideration for various acquisitions of subsidiaries.

 

	2009	2008
	£'000	£'000
1 December	255	1,008
Increase in year	5	-
Utilised during the year	(260)	(807)
Unwinding of discount	-	54
30 November	-	255
Included in current liabilities	-	255
Included in non-current liabilities	-	-

 

Of the 2008 provision held by the Group and Company, £250,000 was deferred consideration on the Speechmark Publishing Limited acquisition and was paid in March 2009. The remainder held by the Group was contingent consideration and represented the best estimate of the amount subsequently paid in June 2009.

 

 

14	PREFERENCE SHARES CLASSIFIED AS A LIABILITY

 

Convertible redeemable preference shares	2009	2008
	£'000	£'000
Authorised:
1,000,000 convertible redeemable preference shares of £1 each	-	1,000

 

Allotted:
987,500 convertible redeemable preference shares of £1 each	-	987
Future interest costs	-	(58)
Liability at fair value	-	929

 

Up to 625,000 preference shares could have been redeemed prior to 31 December 2007 at the company's option on repayment of the nominal value and a coupon rate of 2%. Between 1 January 2008 and 30 December 2009 each preference share was convertible into ten ordinary shares at the option of the shareholder. All unconverted or unredeemed preference shares were repayable at their nominal value on 30 December 2009. Agreement was reached to redeem the preference shares early at less than nominal value to reflect the early redemption with £983,523 being paid on 10 November 2009.

The Group's preference shares had been discounted at 5.5% (2008: 5.5%). In the Directors' opinion the equity element that was included within the option to convert the preference shares was not material to the financial statements at 2008.

 

15	SHARE CAPITAL

 

	2009	2008
	£'000	£'000
Authorised:
300,000,000 ordinary shares of 1p each	3,000	3,000
875,000 convertible preference shares of £1	-	875

 

The preference shares have neither dividend nor voting rights.

 

Allotted, issued and fully paid:		2009		2008
		Ordinary shares	Preference shares	Ordinary shares	Preference shares
		£'000	£'000	£'000	£'000
As at 1 December		1,450	875	1,424	-
Issue of share capital		745	-	-	875
Options exercised		27	-	26	-
Preference shares converted		66	(875)	-	-
As at 30 November		2,288	-	1,450	875

 

The preference shares were fair valued on issue as they converted at the Company's call at 13.25p but the share price at the time was 6.87p. The shares must be disclosed at nominal value so an Other Reserve was created to hold the fair value adjustment of £454,000. The preference shares were classed as equity as it was the Company's call and the share price was much below the 13.25p conversion price. These preference shares were converted on 3 September 2009.

 

A reconciliation of the movements in issued ordinary share capital is as follows:

		Number of shares	Total Share capital	Share price at issue
		Number	£'000	Pence
At 1 December 2007		142,364,441	1,424
20 March 2008	Exercise of share options	2,000,000	20	5.000p
11 June 2008	Exercise of share options	600,000	6	5.875p
At 30 November 2008		144,964,441	1,450
17 March 2009	Exercise of share options	2,700,000	27	3.375p
20 August 2009	Share issue	27,172,414	272	4.000p
3 September 2009	Share issue	47,310,345	473	4.000p
3 September 2009	Conversion of preference shares	6,603,773	66	4.000p
At 30 November 2009		228,750,973	2,288

 

There have been no shares issued since the year end.

 

16	CAPITAL AND RESERVES

 

	Share capital	Preference share capital	Share premium	Other reserves	Reserve for own shares	Reserve for share based payments	Retained earnings	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
1 December 2007	1,424	-	3,039	105	(103)	522	349	5,336
Share issues	26	875	67	(454)	-	-	-	514
Share based payment costs	-	-	-	-	-	208	-	208
Tax taken directly to equity	-	-	-	-	-	(366)	1	(365)
Loss for the year	-	-	-	-	-	-	(367)	(367)
30 November 2008	1,450	875	3,106	(349)	(103)	364	(17)	5,326
Share issues	772	-	1,982	-	-	-	-	2,754
Share issue costs	-	-	(223)	-	-	-	-	(223)
Preference share conversion	66	(875)	355	454	-	-	-	-
Share based payment costs	-	-	-	-	-	96	-	96
Tax taken directly to equity	-	-	-	-	-	12	-	12
Profit for the year	-	-	-	-	-	-	76	76
30 November 2009	2,288	-	5,220	105	(103)	472	59	8,041

 

 

  

Other reserves includes a merger reserve of £105,000 and included a reserve relating to the adjustment of the preference share capital issued as part consideration for the acquisition of Special Education Publishing Limited. The reserve for own shares relates to the employee Share Incentive Plan under which the Group owns 1,218,575 shares (2008: 1,218,575 shares).

 

17	MINORITY INTEREST

 

The Group's minority interest in 2009 was composed entirely of equity interests and represents the minority interests of 30% in IGaming Business Limited (2008: 25%) and nil% in My Child Limited (2008: 49.9%), although the latter has retained losses to date so the minority interest has always been fully provided for. The Group exercised its option to take ownership of the previously externally held shares in My Child Limited on 18 March 2009. There was no consideration under the earn-out due on these shares so beneficial ownership passed at that date. Stock transfer forms are still due from some of the minority so this is not fully reflected at 30 November 2009 in the Companies House records.

 

18	ANALYSIS OF CHANGES IN NET DEBT

 

		At 1 December 2008	Cash flow	Other non-cash changes	At 30 November 2009
		£'000	£'000	£'000	£'000
Cash at bank and in hand		395	309	-	704
Overdraft		(55)	55	-	-
Net cash		340	364	-	704
Bank loans due within one year		(208)	309	(101)	-
Other loans due within one year		(600)	600	(600)	(600)
Finance leases due within one year		(19)	19	(7)	(7)
Debt due within one year		(827)	928	(708)	(607)
Bank loans due after one year		(1,601)	-	101	(1,500)
Other loans due after one year		(600)	-	600	-
Finance leases due after one year		(7)	-	7	-
Debt due after one year		(2,208)	-	708	(1,500)
Net debt		(2,695)	1,292	-	(1,403)

 

Non cash items are reclassifications from due after one year to due within one year and the recognition of overdraft positions where the right of set-off does not apply.

 

19	POST BALANCE SHEET EVENTS

 

Under the share incentive plan announced in November 2007, options on a total of 2,171,642 shares vested in February 2010. The options are exercisable at a price of 1p per share. Details of a new share incentive plan will be presented to shareholders at the Company's AGM.