Annual Report 2009 by Electric Word plc

Annual Report and Financial Statements Year to November 2009

ELECTRIC WORD

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Contents 08 Chairman’s Statement 12 Chief Executive’s Statement 34 Board of Directors 36 Directors’ Report 39 Corporate Governance Statement 42 Statement of Directors’ Responsibilties 43 Independent Auditor’s Report 45 Consolidated Income Statement 46 Consolidated Statement of Recognised Income and Expense 46 Consolidated Group and Company Balance Sheets 48 Consolidated Group and Company Cash Flow Statements 49 Notes to the Financial Statements

Cover image by Janak Singh

Annual Report 30 November 2009

Directors

Solicitors

PS Rigby - Non-Executive Chairman JJC Turner -足 Chief Executive S Routledge - Non-Executive Director QM Brocklebank - Executive Director E Rogers - Executive Director

Memery Crystal LLP 44 Southampton Buildings London WC2A 1AP

Secretary

NK Lloyd Registered Office

Nominated Advisor and Broker

Panmure Gordon (UK) Limited Moorgate Hall 155 Moorgate London EC2M 6XB

33-41 Dallington Street London EC1V 0BB

Company Registration Number

Auditor

Registrars

Baker Tilly UK Audit LLP Registered Auditor Chartered Accountants 2 Bloomsbury Street London WC1B 3ST

Computershare Investor Services Plc PO Box 82 The Pavilions Bridgewater Road Bristol BS99 7NH1

ELECTRIC WORD

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3934419

ELECTRIC WORD

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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. 2009

2008

Change

16,481

17,335

(5)%

Gross Profit

7,431

7,890

(6)%

Adjusted EBITDA*

2,249

2,121

Financial summary (£’000) Revenue

Depreciation

(182)

(128)

Adjusted EBITA*

2,067

1,993

Adjusted profit before tax*

1,938

1,790

(1,137)

(1,367)

Less: restructuring costs / non-recurring gains

Less: amortisation and impairment

(295)

(319)

Less: notional accounting charges

(151)

(313)

355

(209)

270%

Diluted earnings per share

0.04p

(0.26)p

115%

Adjusted diluted earnings per share*

Profit / (loss) before tax (PBT)

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, 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.

Annual Report 30 November 2009

“By bringing together a number of specialist information businesses we can provide a higher standard of infrastructure support – the Group’s analytical approach aims to focus investment and effort on the areas of greatest return as they emerge and develop.”

Quentin Brocklebank (Finance Director, right) with Julian Turner (Chief Executive)

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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.

RESULTS HIGHLIGHTS • 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 *Adjusted numbers, as set out in note 5, 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.

Annual Report 30 November 2009

Chairman’s Statement 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.

A successful business model Electric Word identifies niche communities...

Subscriptions Books and reports

Commerce Specialist Communities

... and enables others to target them effectively.

ELECTRIC WORD

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Advertising, sponsorship, exhibitions, communications

... provides them with paid-for specialist content... Conferences and training

“Customer service is at the heart of all Electric Word’s businesses. We are the face of the Company for many different groups of customers and we try to provide a gold standard of service for both our clients and colleagues.”

Lucinda Morek (London Customer Services and Fulfilment Manager, right) with Donna Chung (Credit Control)

â&#x20AC;&#x153;Electric Word is an impressive business. It has dynamic, talented people working in valuable niche markets - the results achieved in 2009 and its secure capital base create a great foundation for the future.â&#x20AC;?

Peter Rigby (Chairman)

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Chairman’s Statement (continued)

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

Thousands

Average EBITA* growth of 75%

(annualised average, 2004 - 2009)

£2,500 Consistent growth, shared between organic development and acquisitions £2,000 £1,500 £1,000 £500 £0 -£500

2003

2004

2005

2006

2007

2008

2009

2010

*before tax, depreciation, amortisation and impainment charges, non-recurring non-trading gains and losses, minority interests and notional accounting charges.

Annual Report 30 November 2009

Chief Executive’s Statement Electric Word Group: Revenue by activity

Subscriptions Books Events Advertising Commerce Other 0

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500

£’000

2009

Subscriptions

4,291

26%

Event delegates

2,382

Books and reports

4,015

Sales of content Advertising, sponsorship and exhibitions Bespoke publishing services

2008

CHANGE

4,249

25%

15%

2,184

12%

24%

5,266

30%

10,688

65%

11,699

67%

2,980

18%

2,608

15%

487

459

Commerce

2,326

14%

2,569

15%

Sales of access to communities

5,793

35%

5,636

33%

16,481

100%

17,335

100%

Total

Electric Word plc Professional Education

Sport Business

Specialist Consumer

Optimus Professional Publishing

SportBusiness Group

Sports Performance

Speechmark Publishing

iGaming Business

Incentive Plus

ELECTRIC WORD

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My Child

â&#x20AC;&#x153;Optimus conferences had its best ever year in 2009. Our strong stable of annual events are trusted by senior teachers as the place to share their expertise on essential school management issues. 2010 has started just as well and we are working to ensure our success continues after the general election.â&#x20AC;?

Russell Lawson (Head of Conferences and Interim MD, Optimus Professional Publishing)

â&#x20AC;&#x153;Optimus education publishing can learn from the experience of other parts of the Group as the business migrates from paper to online products. We aim to offer subscribers to SENCO Update, one of our successful school management newsletters, even deeper and richer support through our new online service.â&#x20AC;?

Sapna Khimani (Optimus Marketing Manager)

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Chief Executive’s Statement (continued) Profit by division %

2009

2008

10,569

10,668

-1%

1,748

1,966

-11%

17%

18%

4,272

3,832

11% 3%

£’000 Professional education Revenue Adjusted EBITA* Margin Sport business Revenue Adjusted EBITA*

772

748

Margin

18%

20%

1,640

2,835

-42%

Adjusted EBITA*

368

105

250%

Margin

22%

(821)

(826)

16,481

17,335

-5%

2,067

1,993

13%

12%

Specialist consumer Revenue

Central Group costs Adjusted EBITA* As % of Group revenue

Total Group Revenue Adjusted EBITA* Margin Net interest payable*

(129)

(203)

36%

Adjusted PBT*

1,938

1,790

* Adjusted numbers, as set out in note 5, 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.

EBITA margin* continued to improve in 2009 13% 12% 11% 10% 9% 8% 7% 6%

2005

2006

2007

2008

2009

*before tax, amortisation and impairment charges, non-recurring non-trading gains and losses, minority interests and notional accounting charges.

Annual Report 30 November 2009

Chief Executive’s Statement (continued)

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

The division comprises the Optimus, Incentive Plus and Speechmark businesses and provides specialist management and professional development information for school teachers and other professionals working in and with schools. The provision of education for children with special educational and behavioural needs in mainstream schools continues to place new demands on teachers’ professional education and requires a range of specialist resources, as does the devolution of a wide range of school management responsibilities to schools themselves. The division includes subscription newsletters, conferences, books, magazines and a catalogue of third-party products relating to children’s behavioural and emotional development. £’000 Revenue Adjusted EBITA*

Change

2009

2008

10,569

10,668

-1%

1,748

1,966

-11%

17%

18%

Profit margin

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.

Professional Education: revenue by activity Subscriptions Books Events Advertising Commerce Other 0

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500

1,000

1,500

2,000

2,500

3,000

3,500

“Many of Speechmark’s customers have used our specialist speech therapy and mental health resources for two decades. Our products have to be of high quality for their professional use and we’re particularly proud of our new Colorcards. They are part of our increased investment in new titles and made a real contribution to 2009 sales.” Liz Lane (Speechmark and Incentive Plus MD, facing) with Hilary Whates (Publishing Manager)

“The Child Protection Handbook helps schools fulfil their responsibilities in one of the most important and complex areas of their work. We try to make our handbooks comprehensive but accessible – this one was published just when the market needed it most and was our best-seller in 2009. In 2010 we’re adding e-books to the range.”

Frances Peel-Yates (Optimus Managing Editor, left) with Jenny Lee (Editorial Manager, E-Books) and Tom Kington (Commercial Manager, E-books)

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Chief Executive’s Statement (continued)

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.

Profit Bridge (Adjusted EBITA*)

Acquisition Organic 2008

£2,300 £2,200 263

£2,100

(237) 5

£2,000

19 55

£1,900 £1,800 £1,700

1,993

£1,600 £1,500 2008

Specialist consumer

Professional education

Sport business

Central costs

2008 acqnsProf Ed

2009

*before tax, amortisation and impairment charges, non-recurring non-trading gains and losses, minority interests and notional accounting charges.

Annual Report 30 November 2009

“2009 was a tough year for B2B publishers but the business of sport has its own economic cycle – for us, 2009 was the year of bidding for the 2016 Olympic Games and saw some highoctane activity. Each year presents different challenges for the industry so we try to meet their needs from our growing portfolio of products, deep market insight and our many longstanding relationships around the world.”

Philip Savage (MD, SportBusiness Group)

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Chief Executiveâ&#x20AC;&#x2122;s Statement (continued)

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

The Sport Business division is a business to business information provider with skills and experience across a range of mediums including subscriptions, advertising and sponsorship, directories, conferences, managed events, contract publishing, special reports and bespoke research. The division publishes for professionals across the world working in the sports industry in governing bodies, the media, sports marketing, sponsorship and club and event management and in the online gaming industry, the biggest sector for sports sponsorship and itself a fast-growing industry with important information and marketing needs. ÂŁâ&#x20AC;&#x2122;000

2009

2008

Change

Revenue

4,272

3,832

11%

Adjusted EBITA*

772

748

Profit margin

18%

20%

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

Sport Business: revenue by activity

Subscriptions Books Events Advertising Commerce Other 0

500

1,000

1,500

2,000

2,500

3,000

3,500

Annual Report 30 November 2009

Chief Executive’s Statement (continued)

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

This division operates in the business to consumer market for competitive sports athletes and coaches (Sports Performance) and for parents to support their children’s educational development (My Child). The division is principally on-line focussed with significant active web communities already being serviced. £’000

2009

2008

Change

Revenue

1,640

2,835

-42%

Adjusted EBITA*

368

105

250%

Profit margin

22%

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.

Specialist Consumer: revenue by activity Subscriptions Books Events Advertising Commerce Other 0

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500

1,000

1,500

2,000

2,500

3,000

3,500

“We’ve had over ten years experience in online specialist consumer publishing through our Sports Performance titles for competitive athletes, which continued to evolve and improve profits in 2009. That expertise has transferred to our My Child site for parents and helped us speed up its development to create an exciting new business – and we plan to add more new sites in the future.”

Mark Edwards (Head of Specialist Consumer Division)

“The My Child forums (www.MyChild.co.uk/forum) are open to all and offer help, advice and support on all aspects of your children’s education and development. Since they were launched in November, thousands of parents have joined and are talking about everything from toddler tantrums to maths homework, from homeschooling to SATs. They’ve brought the site a new core of engaged visitors and given us a great insight into our customers.”

Michael Howard (Communities Manager, Specialist Consumer Division)

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Chief Executive’s Statement (continued)

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.

£m

Diversified revenues with limited advertising 18.0 16.0

• My Child restructure removed over £1m of revenue (mainly books) to improve profits

Commerce Bespoke

14.0 12.0

Advertising

10.0 8.0

Books/ reports

6.0

Events

• 26% of revenue from renewable subscriptions • 65% from selling content and 35% from selling access to communities

4.0 2.0 0.0

• 18% from advertising, sponsorship & exhibitions

Subscriptions

2008

2009

Annual Report 30 November 2009

Chief Executive’s Statement (continued) Central Costs £’000

2009

2008

Change

Adjusted EBITA*

(821)

(826)

As % of Group revenue 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.

Pence

Adjusted EPS* diluted by successful fundraising 1.40 1.20 1.00 EPS after full year effect of 2009 Placing

0.80 0.60 0.40 0.20 0.00

2005

2006

2007

2008

2009

*after tax but excluding amortisation and impairment charges, non-recurring non-trading gains and losses, notional accounting charges and Income Statement impact of deferred tax.

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â&#x20AC;&#x153;In just three years our London event for affiliates (LAC) has gone from 500 to 2,000 delegates making it one of the biggest in the iGaming sector. Our success depends on never taking our clients and delegates for granted and consistently looking for new and innovative ways to deliver an event where our industry can learn, network and do great business. Our method is simple: listen to our audience and deliver what they want - with a smile.â&#x20AC;? Alex Pratt (Publisher, iGaming Business)

â&#x20AC;&#x153;The web development team works across the Electric Word Group to build new, well-optimised websites and keep improving established ones. The Education division was a big customer in 2009, with 14 new sites launched for our education management newsletters, but all the businesses have development projects to take advantage of our in-house expertise.â&#x20AC;? Janak Singh (left) with Nick Thompson (Senior Web Developers)

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Chief Executive’s Statement (continued)

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

(1,137)

(1,367)

Less: amortisation and impairment Less: restructuring costs / non-recurring gains

(295)

(319)

Less: notional accounting charges

(151)

(313)

355

(209)

Profit / (loss) before tax (PBT)

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 (note 9) 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 preacquisition 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.

Annual Report 30 November 2009

Chief Executive’s Statement (continued)

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 12 and 13). 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 Adjusted earnings figure*

2009

Basic number of shares at 30 November 2008 (note 26)

2009

2008

£1,398,000

Number

Earnings per share (p)

Number

Earnings per share (p)

144,964,441

1.01

144,964,441

0.96

Adjustment in respect of SIP shares

(859,007)

(1,096,794)

Dilutive effect of share options and warrants

7,428,294

10,366,167

2,700,000

Exercise of share options in 2009

154,233,728 Redemption of preference shares £982,500 at 3.625p) Conversion of class A preference shares

154,233,814 27,103,448

6,603,773

0.91

0.78

187,941,035

0.74

235,320,260

0.62

235,320,260

0.59

174,501,566

0.84

153,703,854

0.90

47,379,311

Diluted number of shares at 30 November 2009 Weighted average number of shares in period (fully diluted)

0.95

27,103,448 187,940,949

Further shares placed in 2009 to reduce interest bearing debt

2008

£1,458,000

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).

ELECTRIC WORD

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“Incentive Plus supplies schools and other children’s services with resources that can change people’s lives. Making this happen every day is exciting, energizing and inspiring. I love it!”

Liz Lane (MD Speechmark Publishing and Incentive Plus) with Warren Percival (Operations Manager)

“Operating across different niche markets helps us to transfer learning and expertise from one sector to another – I find the benefit we get from sharing experiences and insights is exhilarating, challenging and often transforming.” Julian Turner (Chief Executive)

ELECTRIC WORD

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Chief Executive’s Statement (continued) Key performance indicators

The table below summarises the key performance indicators used across the Group. These are compared against prior year and forecast and analysed in light of that. Net profit is in line with the forecast as are other key financial indicators as reported to the stock markets and announced on. Some variances are seen across other indicators but are followed up on as noted with performance addressed or forecasts reset. Key Performance Indicators Type Profit

Revenue

People

Description

Granularity

Frequency reviewed

Unit

Net Profit

75 profit centres

Monthly

Gross profit margin

75 profit centres

Monthly

Net profit margin

75 profit centres

Monthly

Variance to forecast

30 nominal codes, over 75 profit centres

Monthly

%/£

Marketing campaign ROI (Revenue or Gross Profit return per £1 of marketing money invested)

ROI is tracked across over 2,000 individual marketing campaigns and over 5,000 discrete e-marketing activities

Daily

Sales value and forward bookings

By division

Weekly

£/#

Customer Lifetime Value

Individual product and price point

Quarterly

Average customer life

By customer group by product

Quarterly

Years

Subscriber retention rate

By customer group by product

Monthly

Marketing spend as % revenue

75 profit centres

Monthly

Advertising yield per page

Per magazine

Monthly

Average yield per subscriber

Per product

Monthly

Average yield per delegate

Per event

Monthly

Lead times (weeks of active marketing preceding conference)

Per event

Daily

Days

Web traffic KPIs (page views, unique visitors etc)

Per website

Daily

‘000

Revenue per employee

75 profit centres

Monthly

Revenue per salesperson

Individual

Monthly

Employee retention

8 Divisions

Annual

Employee engagement

36 dimensions across 12 work teams

Annual survey

Julian Turner

Chief Executive 15 February 2010

Annual Report 30 November 2009

Board of Directors Julian Turner

Julian Turner, aged 48, led the flotation of Electric Word plc as Chief Executive in March 2000. He was previously the Director of Marketing of Euromoney Institutional Investor plc for three years. This followed five years at Guardian Newspapers Limited, where he had commercial management roles in the Product Development Unit, Guardian Magazines and Wired Magazine (UK). Before starting his career in subscription-based publishing he spent four years in postgraduate research in medieval English political history. Quentin Brocklebank

Quentin Brocklebank, aged 39, joined Electric Word plc as Finance Director on 2 July 2007 and was appointed to the Board with effect from the same date. He joined from Dr Foster Intelligence, the leading health information business. He previously worked at Informa plc for over seven years in several senior financial positions. These included Group Financial Controller, Divisional Finance Director and CFO of a subsidiary in the US. He is a chartered accountant and worked at KPMG Audit Plc in London. Emma Rogers

Emma Rogers, aged 31, joined Electric Word plc in June 2002 as marketing manager for the public sector division. As the Group grew, Emma took on the role of Group Marketing Manager, and following a number of years in this position, was appointed to manage Electric Wordâ&#x20AC;&#x2122;s education publishing division (Optimus Education) in March 2007. She is now responsible for the professional education division, consisting of Optimus Professional Publishing Limited, Incentive Plus Limited and Speechmark Publishing Limited. Non-Executive Directors Peter Rigby

Peter Rigby, aged 54, joined Metal Box after qualifying as an accountant. In 1981 he moved into the media industry joining Book Club Associates, a joint venture between WH Smith and Doubleday. In 1983 he joined Stonehart Publications which was acquired by International Business Communications (later renamed IBC) in 1986. After two years as Finance Director of IBC he was appointed Deputy Chief Executive and in 1989 became its Chief Executive, leading IBCâ&#x20AC;&#x2122;s substantial geographic expansion. Since the merger of IBC and LLP in 1998 by which Informa plc was created he has been Executive Chairman or Chief Executive. Peter was appointed Non-Executive Chairman of Electric Word in March 2004. Stephen Routledge

Stephen Routledge, aged 46, is an investment banker in the media industry. After a career at Lazard and HSBC he founded Trillium Partners in 2003. Trillium Partners is a specialist media industry advisory house which acts for public and private clients on a range of corporate finance transactions. Stephen is a law graduate and a chartered accountant. Stephen joined the Electric Word Board of directors in September 2006.

ELECTRIC WORD

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â&#x20AC;&#x153;Online sales from our new Optimus shop and email marketing have been key drivers of education revenue in 2009. Digital channels help us target our niche customers and improve margins too.â&#x20AC;?

Emma Rogers (Director, Education, right) with Victoria Hamer (Optimus Digital Marketing Manager)

Annual Report 30 November 2009

Directors’ Report The directors present their report and the Group financial statements for the year ended 30 November 2009. Results and dividends

The Group profit for the financial year amounted to £149,000 (2008: loss £326,000) of which £73,000 (2008: profit £41,000) is attributable to the minority interest. The directors have not recommended a dividend (2008: £nil). Principal activities

Electric Word plc delivers specialist information in a wide range of formats through three divisions. Professional education serves professional communities in schools and other institutions, including school leaders and managers, special needs and speech therapy professionals and teachers. Sport business provides insight and analysis into the business of sport for international sports federations, brands and sponsors, broadcasters and media, major event organisers and the online gaming industry across the world. Specialist consumer 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 newsletters, magazines, websites, events, books, special reports and bespoke research and publishing. Review of the business and future developments

A review of the business and future developments of the group is presented in the Statements by the Chairman and Chief Executive on pages 8 to 33. Key Performance Indicators are described in the Chief Executive’s Statement and the control of business risk forms part of the Corporate Governance Statement. Financial risk management is discussed in note 25 of the financial statements. The Group has purchased none of its own ordinary 1 pence nominal value shares in 2009 (2008: none) to meet its requirements with regard to the Share Incentive Plan scheme (note 31). These shares represent 0% (2008: 0%) of the called-up share capital. Principal risks and uncertainties

The principal risks and uncertainties are covered in the corporate governance statement and in the critical accounting estimates and judgements section within the accounting policies. Events since the balance sheet date

Since the balance sheet there have been no significant events except that 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. Political and charitable donations

The great majority of the value that the Company puts to the service of charitable and community organisations is through enabling employees to make their time and skills available, to a value which in 2009 exceeded £4,000 (2008: greater than £4,000). In addition, the Company makes regular contributions to an employees’ charitable committee, which in 2009 amounted to under £1,000 (2008: £1,000). The Company made no political donations.

ELECTRIC WORD

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ELECTRIC WORD

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Directors and their interests

The following directors have held office since 1 December 2008 to date: JJC Turner D Jacquesson (resigned 31 January 2009) CK Kington (resigned 31 March 2009) QM Brocklebank E Rogers (appointed 31 January 2009) PS Rigby S Routledge The directors at 30 November 2009 and their interests in the ordinary share capital of the company are as follows: At 30 November 2009

At 1 December 2008

3,260,787

QM Brocklebank

–

E Rogers

–

PS Rigby

400,000

–

JJC Turner

S Routledge

No director had an interest in the preference shares of the company, or in the shares of any subsidiary company. Purchase of own shares

At the end of the year the directors had authority, under a shareholders’ resolution passed on 21 May 2009, to purchase through the market up to 14,766,444 (2008: 11,603,211) of the Company’s ordinary shares. The minimum price which may be paid for each ordinary share is 1 pence; the maximum which may be paid is an amount equal to 120% (2008: 105%) of the average of the middle market prices shown in the quotation for an ordinary share as derived from the Stock Exchange Alternative Trading Service of the Stock Exchange for the ten business days immediately preceding the day on which the ordinary share is purchased. Major interests in shares

Other than the directors’ interests shown previously, the Company has been notified of the following substantial interests as at 15 February 2010: Number of ordinary shares of 1p each

Percentage of issued share capital

Stewart Worth Newton

58,991,171

25.8%

ISIS Equity Partners

51,637,932

22.6%

Nigel William Wray

11,213,045

4.9%

Forum European Small Caps GmbH

10,372,727

4.5%

Hargreave Hale

9,250,000

4.0%

Henderson New Star

8,000,000

3.5%

Annual Report 30 November 2009

Directorsâ&#x20AC;&#x2122; Report (continued) Issues of shares There has been one exercise of share options in the year resulting in the issue of 2,700,000 ordinary shares, one placing of shares which was performed in two tranches resulting in a combined issue of 74,482,759 ordinary shares and the conversion of a class of preference shares resulting in the issue of 6,603,773 ordinary shares (note 26 of the financial statements). Creditor payment and policy

The Companyâ&#x20AC;&#x2122;s policy, which is also applied by the Group, is to ensure that, in the absence of dispute, all suppliers are dealt with in accordance with their standard payment practice whereby all outstanding trade accounts are settled within the terms agreed with the supplier at the time of supply or otherwise 30 days from the receipt of the relevant invoice. Trade creditor days at 30 November 2009 for the Group were 26 days (2008: 35 days). Statement as to disclosure of information to the auditor

The directors who were in office on the date of approval of these financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the directors have confirmed that they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant information and to establish that it has been communicated to the auditor. Auditor

A resolution to re-appoint Baker Tilly UK Audit LLP as auditor will be proposed at the forthcoming Annual General Meeting. By order of the Board

Julian Turner Director 15 February 2010

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ELECTRIC WORD

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Corporate Governance Statement The policy of the Board is to manage the affairs of the Company in accordance with the Principles of Good Governance and Code of Best Practice as set out in Section 1 of the Revised Combined Code. The directors support the principles underlying the requirements insofar as is appropriate for a company the size of Electric Word plc. The Board and its committees

Board meetings are scheduled to take place once a quarter and there is contact between meetings as required. The meetings are held to set and monitor strategy, review trading performance, guide business development, examine acquisition possibilities and approve reports to shareholders. In addition, the Board approves the annual forecast and any re-forecasts. Procedures are established to ensure that appropriate information is communicated to the Board in a timely manner to enable it to fulfil its duties including monthly Board papers with commentary, divisional results and key performance indicators. Details of directors who served during the year are set out in the directorsâ&#x20AC;&#x2122; report. The Board is now comprised of three Executive and two Non-Executive directors. Each year one third of the Board are subject to re-election by rotation. The Board has separate roles for Chairman and Chief Executive. The Board has established an Audit Committee, which comprises the non-executive Chairman Peter Rigby and Stephen Routledge. The Audit Committee meets once a year. It is responsible for meeting the auditor, reviewing the annual report and accounts before their submission to the Board ensuring that the financial performance of the Company is properly reported on and monitored, reviewing the recommendations of the auditor on accounting policies, internal control and other findings of the audit and making recommendations to the Board on the scope of the audit and the appointment of the auditor. The Audit Committee keep the independence and objectivity of the auditor under review and a formal statement of independence is received from the external auditor each year. The Board has established a Remuneration Committee, which comprises the non-executive Chairman Peter Rigby and Stephen Routledge. The remuneration committee meets once a year and reviews the performance of the executive directors and the scale and structure of their remuneration having due regard to the interests of the shareholders. The Committee also approves the granting of share options. The Board has not established a Nomination Committee as it regards the approval and appointment of directors (whether executive or non-executive) as a matter for consideration by the whole Board. Statement on corporate social responsibility

Electric Word has a strong sense of social responsibility. We view editorial integrity and independence as fundamental qualities of the information we provide. We value a diverse workforce in which people are encouraged to fulfil their potential, and a workplace culture that promotes fairness, rationality, responsibility and the support of personal development. Employee participation in the direction and management of the company is encouraged by regular consultation and a major annual review of employee engagement. Since its inception, Electric Word has always seen itself as part of a broader community. The Company encourages broader community participation by its employees (for example our staff includes two school governors). We offer time off to facilitate such involvement and support with other resources where appropriate, we run an annual internship programme for enterprise education and run a company charity fund which makes quarterly donations determined by employees. We continue to look for ways that the Company and its staff can contribute to the community, particularly when these reflect our principal business activities in the education and sports sectors.

Annual Report 30 November 2009

Corporate Governanace Statement (continued) Communication with shareholders

The Board encourages regular dialogue with shareholders. All shareholders are invited to the AGM at which directors are available for questioning. The notice of AGM is sent to all shareholders at least 21 working days before the meeting. The number of proxy votes received for and against each resolution is disclosed at the AGM and a separate resolution is proposed on each item. Financial and other information about the Company is available on the Company’s website (www.electricwordplc.com). Internal control

The directors are responsible for the Group’s systems of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide the directors with reasonable and not absolute assurance against material misstatement or loss. The key procedures that have been established and which are designed to provide effective internal control are as follows: • Management structure – Each of the Group’s divisions are managed by a senior executive who sits on a

Management Board that meets weekly and includes the executive directors. The Executive Board meets once a quarter.

• Financial reporting – An annual forecast is prepared by the executive directors and is reviewed by the whole

Board. Performance against forecast is monitored monthly down to the level of individual profit centres.

• Internal audit – The Board has reviewed the need for an internal audit function and has concluded that the

Group is not large enough to warrant a full time internal auditor.

The Board reviews the effectiveness of the systems of internal control and the control environment and carries out an annual detailed review. The most recent detailed review of the major business risks was carried out in December 2009 and the necessary measures to mitigate those risks as far as possible are instigated and regularly monitored by the Management Board. No significant control deficiencies were reported then or during the year in the Group’s standard controls. These controls are applied to acquisitions as soon as is feasibly possible and the acquisitions are brought up to the Group’s standards where they are found to be weaker. The review is currently being updated to confirm that no additional measures are now required. No weaknesses in internal controls have resulted in any material losses, contingencies or uncertainty which would require disclosure as recommended by the guidance for directors on reporting on internal controls. The Group’s portfolio across both market sectors is believed to be robust with risk limited. The product range is varied but all are aimed at niche markets with the intention that it is ‘must have’ information. There is no reliance on particular customers with the base being made up of many of lower value. The Group continues its key approach of analysing all investments’ returns and has management accounts down to product level. This practice is intended to prevent overspend without due benefit and foretell where product life is ending so that appropriate actions can be taken. The Group has a key core of employees with strong market and product knowledge but has always sought to position itself as not reliant on individuals but ensuring that the knowledge and responsibilities are shared. There is exposure to interest rate movements in the Group as detailed in note 19, but at present and with the levels of debt involved it is felt appropriate that no instruments are required to mitigate this but with the situation continually reviewed. There is a limited exposure to foreign currency rate volatility, notably on the US dollar but this is matched as far as possible with natural hedges in having various receivables and payables in the same currency. The extent of the net gains and losses in this area is given in note 9.

ELECTRIC WORD

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ELECTRIC WORD

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Quality and integrity of personnel

The integrity and competence of personnel is ensured through high recruitment standards and a commitment to management and business skills training. High quality personnel are seen as an essential part of the control environment and the high ethical standards expected are communicated by management leadership and through the employee handbook provided to all employees. Disabled persons

The group will employ disabled persons where they appear to be suitable for a particular vacancy and every effort is made to ensure that they are given full and fair consideration when such vacancies arise. The number of disabled persons employed by the Group was nil (2008: nil). Health and safety

It is the objective of the Group to ensure the health and safety of its employees and of any other persons who could be affected by its operations. It is the Groupâ&#x20AC;&#x2122;s policy to provide working environments which are safe and without risk to health and provide information, instruction, training and supervision to ensure the health and safety of its employees. Investment appraisal

The Board approves proposals for the acquisition of new businesses and sets guidelines for the launch of new products. Capital expenditure is regulated by strict authorisation controls. Depending on the level of expenditure, detailed written proposals must be submitted either to the Board or the Management Board and reviews carried out to monitor progress against budget. Going concern

Having made appropriate enquiries and having examined the major areas which could affect the Groupâ&#x20AC;&#x2122;s financial position, the directors are satisfied that the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they consider it appropriate to adopt the going concern basis in preparing the financial statements.

Annual Report 30 November 2009

Statement of Directors’ Responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Company financial statements for each financial year. The directors are required by the AIM rules of the London Stock Exchange to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected to prepare the Company financial statements in accordance with IFRS as adopted by the EU. In preparing these financial statements, the directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgments and estimates that are reasonable and prudent;

c. state whether the financial statements have been prepared in accordance with IFRS as adopted by the EU; d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the

Group and the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Electric Word plc website, www.electricwordplc.com. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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ELECTRIC WORD

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Independent Auditor’s Report We have audited the financial statements on pages 45 to 93. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors

As more fully explained in the Statement of Directors’ Responsibilities set out on page 42, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org. uk/apb/scope/UKNP. Opinion on the financial statements

In our opinion: • the financial statements give a true and fair view of the state of the group’s affairs as at 30 November 2009 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the Parent financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and • the financial statements have been prepared in accordance with the provisions of the Companies Act 2006.

Annual Report 30 November 2009

Independent Auditor’s Report (continued) Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent company financial statements are not in agreement with the accounting records and returns; or • the financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Euan Banks (Senior Statutory Auditor) For and on behalf of BAKER TILLY UK AUDIT LLP, Statutory Auditor Chartered Accountants 2 Bloomsbury Street London WC1B 3ST 15 February 2010

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ELECTRIC WORD

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Consolidated Income Statement for the year ended 30 November 2009 Group Notes Revenue

Cost of Sales – Direct costs

2009

2008

£’000

16,481

17,335

(6,434)

(5,892)

(2,616)

(3,553)

GROSS PROFIT

7,431

7,890

Other operating expenses

(5,278)

(5,977)

Cost of Sales – Marketing expenses

Depreciation expense

(182)

(128)

Amortisation expense

(527)

(497)

(5,987)

(6,602)

1,444

1,288

(610)

(870)

Restructuring costs

(295)

(340)

Non-operating income and expense

Total administrative expenses OPERATING PROFIT Impairment expense

Finance costs

(188)

(350)

Investment income

PROFIT / (LOSS) BEFORE TAX

355

(209)

(206)

(117)

149

(326)

- Equity holders of the parent

(367)

- Minority interest

149

(326)

Taxation PROFIT / (LOSS) FOR THE FINANCIAL YEAR Attributable to:

EARNINGS / (LOSS) PER SHARE Basic

0.05p

(0.26)p

Diluted

0.04p

(0.26)p

Annual Report 30 November 2009

Consolidated Statement of Recognised Income and Expense for the year ended 30 November 2009 Group Note Profit / (loss) for the year 16

Tax taken direct to reserves Total recognised income and expense for the year

2009

2008

£’000

149

(326)

(366)

161

(692)

(733)

Attributable to: - Equity holders of the parent company - Minority interests

161

(692)

Consolidated Group and Company Balance Sheets as at 30 November 2009 Company registration number 3934419 Group

Company

2009

2008

2009

2008

Notes

£’000

Goodwill

8,301

8,811

Other intangible assets

1,856

2,465

ASSETS Non-current assets

Property, plant and equipment

293

364

159

Investments

8,244

8,366

Deferred tax assets

711

746

120

122

11,161

12,386

8,445

8,663

Current assets Inventories

1,304

1,223

Trade and other receivables

3,560

3,253

3,814

2,947

Cash and cash equivalents

TOTAL ASSETS

ELECTRIC WORD

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704

395

223

5,568

4,871

4,037

2,950

16,729

17,257

12,482

11,613

ELECTRIC WORD

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Consolidated Group and Company Balance Sheets (Continued) Group

Company

2009

2008

2009

2008

Notes

£’000

Called up ordinary share capital

2,288

1,450

2,288

1,450

EQUITY AND LIABILITIES Capital and Reserves Preference share capital

875

Other reserve

(454)

Share premium account

5,220

3,106

5,220

3,106

Merger reserve

105

Reserve for own shares

(103)

Reserve for share based payments

472

364

472

364

Retained earnings

Equity attributable to equity holders of the parent Minority Interest

(17)

(681)

(419)

8,041

5,326

7,299

4,922

TOTAL EQUITY

8,072

5,398

7,299

4,922

Non-current liabilities Borrowings

1,500

2,201

1,500

2,201

Deferred tax liabilities

511

676

Obligations under finance leases

Preference shares

929

2,011

3,813

1,502

3,144

600

863

600

838

246

235

Trade payables and other payables

2,502

2,794

3,074

2,440

Provisions

255

250

Current liabilities Borrowings Current tax liabilities

Obligations under finance leases

Deferred income

3,291

3,880

TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES

6,646

8,046

3,681

3,547

8,657

11,859

5,183

6,691

16,729

17,257

12,482

11,613

These financial statements on pages 45 to 93 were approved by the Board of Directors and authorised for issue on 15 February 2010 and are signed on its behalf by: P Rigby Chairman J Turner Chief Executive

Annual Report 30 November 2009

Consolidated Group and Company Cash Flow Statements for the year ended 30 November 2009 Group Notes

Company

2009

2008

2009

2008

£’000

1,444

1,288

Amortisation

527

497

Depreciation

182

128

Share based payment charges

208

Restructuring costs

(295)

(340)

1,954

1,781

249

384

(81)

(419)

(Increase) / decrease in receivables

(306)

(867)

(737)

(Decrease) / increase in payables

(993)

(1,205)

634

718

574

167

365

Interest paid

(134)

(245)

(128)

(243)

Taxation paid

(315)

(206)

(5)

125

(284)

(112)

117

(140)

(174)

Operating profit

Operating cash flows before movement in working capital Increase in inventories

Cash flow from operating activities before interest and tax

Cash inflow / (outflow) from operating activities INVESTING ACTIVITIES Acquisitions of subsidiaries, net of cash acquired Sale of disposal option

23, 29

(260)

(725)

(250)

(717)

Purchase of property plant and equipment

(111)

(181)

(3)

(18)

Purchase of intangible assets

(13)

(11)

(4)

(380)

(994)

(257)

(873)

2,754

Cost of issuing shares

(223)

Repayments of preference shares

(984)

Proceeds of new long term borrowings

600

Proceeds of new short term borrowings

100

Repayments of borrowings

(909)

(170)

(909)

(170)

Repayments of obligations under finance leases

Deferred consideration paid

Interest received Net cash used in investing activities FINANCING Proceeds from issuance of ordinary shares

(19)

(40)

(19)

(40)

Net cash from financing activities

619

502

619

502

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS

364

(776)

250

(254)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR

340

1,116

(27)

227

704

340

223

(27)

CASH AND CASH EQUIVALENTS AT END OF YEAR

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ELECTRIC WORD

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Notes to the Financial Statements 1. Accounting Policies Basis of Accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards as endorsed by the EU (“IFRS”), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements of the Group and the parent Company have been prepared under the historical cost convention and in accordance with applicable accounting standards. As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account is presented for the Company. The Company’s loss for the year was £262,000 (2008: £263,000 loss). Operating profit is defined as profit before tax and excludes impairment expense, restructuring costs, nonoperating income and expense, finance costs and investment income. Going Concern

The Group has a net current liabilities position at 30 November 2009. However, it has net assets overall and the directors believe from reviewing the Group’s cash flow forecasts that it is appropriate to prepare the financial statements on a going concern basis. There is long-term financing in place with the largest borrowing facility’s term being extended during the period out to May 2011. The Group placed ordinary shares in the period worth £2.75 million and has reduced its net debt significantly. The Group continues to maintain positive cash flows excluding acquisition spend. A significant element of the Group’s net current liabilities position is deferred revenue accumulated from payments received in advance, notably on subscription publishing, and on which the cost of fulfilment is significantly less than the refund exposure included in the balance sheet. Basis of Consolidation

These financial statements incorporate those of the Company and all its subsidiary undertakings under the purchase method of consolidation, except for an initial acquisition on the start of the Group which was accounted for under merger accounting. The results of acquired entities are included in the consolidated income statement from the date control passes to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The cost of an acquisition is measured as the cash paid and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The results of subsidiaries acquired or sold are included in the consolidated financial statements based on the date control passes. Where necessary, adjustments are made to the results of the acquired subsidiaries to align their accounting policies with those of the Group. All intra-group transactions are eliminated on consolidation. Minority interests in the net assets of the consolidated subsidiaries are identified separately from the Group’s equity and consist of the amount of those interests at the date of the original business combination plus their share of changes in equity since that date. Goodwill

Goodwill arising on the acquisition of subsidiary companies and businesses is calculated as the excess of the purchase consideration over the fair value of net identifiable assets and liabilities at the date of acquisition. It is recognised as an asset at fair value, assessed for impairment at least annually and subsequently measured at cost less accumulated impairment losses. Where an impairment test is performed a discounted cash flow analysis is carried out based on the cash flows of the cash generating unit compared with the carrying value of that goodwill. Management estimate the discount rates as the risk affected cost of capital for the

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 1. Accounting Policies (continued)

particularÂ businesses. Any impairment is recognised immediately in the Income Statement. Upon disposal the attributable carrying value of goodwill is included in the calculation of the profit or loss on disposal. Intangible Assets

Intangible assets mainly comprise book and magazine titles, which are initially stated at fair value. For business combinations, fair value is calculated based on the Groupâ&#x20AC;&#x2122;s valuation methodology, using discounted cash flows. These assets are amortised on a straight line basis over their estimated useful lives, which tend to be 3 to 10 years for book and magazine lists, 4 years for customer databases and 3 years for other intangible assets, including customer relationships and contacts. Software which is not integral to a related item of hardware is also recognised as intangible assets. Capitalised internal-use software costs include external direct costs of materials and services consumed in the development or purchase of the software, use of dedicated contractors, and payroll and related costs for employees who are directly associated with or who devote substantial time to the project. Capitalisation of these costs ceases when the project is substantially complete and ready for its internal purpose. These costs are amortised over their expected useful life deemed to be two to three years in all cases so far. The expected useful lives of intangible assets are reviewed annually. All amortisation charges are taken to amortisation expense and all impairment charges (note 9) are taken to impairment expense on the face of the income statement. Property, Plant And Equipment

Property and equipment is recorded at cost less accumulated depreciation and provision for impairment. Depreciation is provided to write off the cost of an asset, less its estimated residual value, over its estimated useful economic life. On disposal of an asset the difference between the proceeds and residual net book value at that time is taken to the income statement as a gain or loss on disposal. The rates of depreciation are as follows: Fixtures, fittings and equipment Computer equipment Leasehold property improvements Website design Website content

30% reducing balance 50% straight line over term of lease 25% straight line 50% straight line

The assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable or as otherwise required by accounting standards. Impairment losses are recognised in the income statement. Investments

Shares in subsidiary undertakings are considered long-term investments and are classified as non-current assets. All investments are stated at cost. Provision is made for any impairment in the value of non-current asset investments where events or changes in circumstances indicate the carrying value may not be recoverable. Inventories

Inventories are valued at the lower of cost and net realisable value. Cost comprises direct materials and expenses incurred in bringing the inventory to its present condition and location measured on a first in, first out basis.

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ELECTRIC WORD

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Net realisable value represents the estimated selling price less costs expected to be incurred in the sale. Work in progress includes costs (excluding promotional costs) incurred for books not yet being sold at the balance sheet date. Provision is made for obsolete and slow moving items. Impairment

The Group and company review the carrying amounts of their assets for potential impairment on at least an annual basis. If management believe their value to be impaired the value is written down and a loss is taken to the income statement. Borrowing Costs

Finance costs are recognised in the income statement in the period in which they are incurred. Arrangement fees in relation to loans are capitalised and expensed over the term of the loan. Foreign Currencies

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency at the rates of exchange ruling at that date. Transactions in foreign currencies are recorded at the rate ruling at the date of transaction. All differences on translation are disclosed in the Income Statement. The functional currency for the parent is pounds sterling (GBP). Leased Assets and Obligations

Where assets are financed by leasing agreements that give rights approximating to ownership (‘finance leases’), the assets are treated as if they had been purchased outright. The assets are capitalised at their fair value or, if lower, at the present value of the minimum lease payments payable during the lease term. The corresponding leasing commitments are shown as obligations to the lessor. Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the Income Statement in proportion to the remaining balance outstanding. All other leases are ‘operating leases’ and the annual rentals are charged to the Income Statement on a straight-line basis over the lease term. Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax nor accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 1. Accounting Policies (continued)

The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on the rates enacted and substantially enacted at the balance sheet date. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Pension Costs

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from the individual companies. The pension charge associated with the scheme represents contributions payable. Share based payments

The Group issues equity-settled share based payments to certain employees. A fair value for the equity-settled share awards is measured at the date of the grant. The fair value is measured using either the Black Scholes or Monte Carlo methods of valuation, which are considered to be the most appropriate valuation techniques. The valuation takes into account factors such as non-transferability, exercise restrictions and behavioural considerations. An expense is recognised to spread the fair value of each award over the vesting period on a straight-line basis, after allowing for an estimate of the share awards that will actually vest. The estimate of vesting is reviewed annually, with any impact on the cumulative charge being recognised immediately. Amounts to be settled in shares are presented within Equity, representing the expected time-apportioned fair value of the awards that are expected to vest. Revenue

Revenue represents the value, net of Value Added Tax, of subscription income, events income and other income and is recognised in the Income Statement as services are performed with that portion relating to subsequent years included in deferred revenue. Subscription revenue is deferred and recognised over the term of the subscription as the obligation is met. Conference and exhibition revenue is deferred and recognised when the event is held. Other revenue such as consultancy and contract publishing are recognised as services are delivered. Operating Profit

Operating profit represents the statutory profit before tax but before any charges for impairment expenses and restructuring costs, non-operating income and expense, and all finance costs and investment income. Restructuring costs are defined in note 5. Financial Assets

Financial assets are recognised on the Groupâ&#x20AC;&#x2122;s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are classified by Management upon initial recognition dependent upon purpose for which they were acquired between: loans and receivables, financial assets at fair value through profit or loss, held to maturity investments, and available-for-sale investments.

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Effective interest method This is a method of calculating the amortised cost of a financial asset and liabilities and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or, where appropriate, a shorter period, to the net carrying amount of the financial asset. Income is recognised on an effective basis for all debt instruments within the Group. Loans and receivables Trade receivables, loans and other receivables, are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method, less any impairment. Cash and cash equivalents These comprise cash in hand and demand deposits and other short-term highly liquid investments that are readily convertible (with a maturity of three months or less) to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement. Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For all other financial assets objective evidence of impairment could include: • significant financial difficulty of the issuer or counterparty; or • default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial reorganisation. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. A specific provision will also be raised for trade receivables when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of a provision account. When a trade receivable is considered uncollectible, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against the provision account. Changes in the carrying amount of the provision account are recognised in the income statement.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 1. Accounting Policies (continued)

Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Financial Liabilities and Equity Instruments Issued by the Group

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Financial guarantee contract liabilities Financial guarantee contract liabilities are measured at the amount of the obligation under the contract, as determined in accordance with IAS 37 â&#x20AC;&#x153;Provisions, Contingent Liabilities and Contingent Assetsâ&#x20AC;?. Borrowings Interest-bearing loans and overdrafts are recorded at fair value net of direct issue costs and subsequently at amortised cost. Premiums, payable on settlement or redemption, are accounted for on an accrual basis in the income statement using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables and other financial liabilities Trade payables and other financial liabilities are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method, with interest expense recognised on an effective yield basis. The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount of the financial liability. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Groupâ&#x20AC;&#x2122;s obligations are discharged, cancelled or they expire.

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Own Shares

Own shares deducted in arriving at Equity represent the cost of the Company’s ordinary shares acquired by the Employee Share Option Plan trusts in connection with certain of the Group’s employee share schemes. Provisions

A provision is recognised in the Balance Sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation which can be measured reliably. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Critical Accounting Estimates and Judgements

Within the consolidated and company 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 and company 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 and company 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 12; • 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. These inputs and the methods are set out in note 31. General Information

In the current year the Group has early adopted IFRS 2 Share Based Payments and IAS 23 Revised Borrowing costs (both effective for annual reporting periods beginning on or after 1 January 2009). The impact of these adoptions are negligible.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 1. Accounting Policies (continued)

At the date of authorisation of these financial statements, the following standards and amendments which have not been applied in these financial statements were in issue but have not yet come into effect: IFRS 3 (Revised) IFRS 7 (Revised) IFRS 8 IAS 1 (Revised) IAS 27 (Revised) IAS 39 (Revised)

Business Combination Financial Instruments: Disclosure Operating Segments Presentation of Financial Statements (comprehensive revision) Consolidated and Separate Financial Statements Financial Instruments: Recognition and Measurement

The Directors anticipate that the adoption of these standards and amendments in future periods will have no material impact on the financial statements of the Group except for additional segment disclosure as a result of IFRS 8 and the presentation of a statement of equity as a primary statement as a result of IAS 1 Revised. Both of these come into effect for periods commencing on or after 1 January 2009. 2. Revenue And Cost Of Sales

An analysis of the Group’s income is as follows: 2009

2008

£’000

Revenue Sale of goods Rendering of services

11,120

12,543

5,361

4,792

16,481

17,335

Cost of sales Change in inventories of finished goods

363

Raw materials and consumables used

(6,514)

(6,255)

Marketing costs

(2,616)

(3,553)

(9,050)

(9,445)

7,431

7,890

Gross profit

3. 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.

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Analysis by market sector: Revenue

Segment result: profit/(loss) from operations

2009

2008

2009

2008

£’000

10,569

10,668

1,303

1,555

Sport business

4,272

3,832

739

625

Specialist consumer

1,640

2,835

240

(57)

Professional education

(838)

(835)

16,481

17,335

1,444

1,288

Group function

Operating profit is defined in note 1. 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: adjusted segment result: profit/loss from operations 2009

2008

£’000

1,748

1,966

Sport business

772

748

Specialist consumer

368

105

(821)

(826)

2,067

1,993

Professional education

Group function

Capital additions

Depreciation / amortisation

Impairments (note 9)

2009

2008

2009

2008

2009

2008

£’000

Professional education

426

357

604

Sport business

170

Specialist consumer

112

140

112

700

Group function

119

111

181

709

625

610

870

Assets

Liabilities

2009

2008

2009

2008

£’000

Professional education

5,290

6,907

3,518

3,558

Sport business

1,728

1,329

1,053

910

Specialist consumer Group function Net debt and taxation (current and deferred)

371

373

410

1,370

8,629

7,902

812

2,020

711

746

2,864

4,001

16,729

17,257

8,657

11,859

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 3. Segmental Analysis (continued)

The following table provides an analysis of the Groups’ revenue by geographical segment: 2009

2008

£’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. 4. Employees

The average monthly number of persons (including directors) employed by the Group during the year, analysed by category, was as follows: 2009

2008

Number

Sales and marketing

Content and production

Administration and management

140

141

2009

2008

Their aggregate remuneration comprised:

Wages and salaries Social security costs

£’000

4,183

4,210

425

302

Pension costs

Equity-settled share-based payments and related costs

208

4,724

4,730

This remuneration is included in other operating expenses except for £226,000 (2008: £194,000) included in cost of sales – marketing expenses, £62,000 (2008: £178,000) included in restructuring costs and £98,000 (2008: £42,000) capitalised in the tangible fixed asset for web site development.

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The board of directors represents the Group’s key management personnel. Their remuneration is summarised below in aggregate for each of the categories specified in IAS 24 “Related Party Transactions”:

Short term employment benefits, including employer’s national insurance of £46,000 (2008: £48,000) Post employment benefits

2009

2008

£’000

443

464

Other long-term benefits Termination benefits Share based payments Gains on exercise of options

135

523

599

The directors’ emoluments in the year were £397,000 (2008: £416,000) and social security costs totalled £46,000 (2008: £48,000). There were no retirement benefits accruing for the directors. Highest paid director

2009

2008

£’000

135

129

Post employment benefits

Other long-term benefits

Short term employment benefits

Termination benefits Share based payments Social security costs Gains on exercise of options

168

172

One director (2008: one) exercised share options in the year and made gains of £23,000 (2008: £19,000). Shares are receivable under long term incentive schemes in respect of 3 directors (2008: 4 directors).

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 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.

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Notes OPERATING PROFIT FOR THE YEAR Amortisation of intangible assets Notional accounting charges – share based payment charges Adjusting items to operating profit Adjusted operating profit for the year

2009

2008

£’000

1,444

1,288

527

497

208

623

705

2,067

1,993

182

128

2,249

2,121

PROFIT / (LOSS) BEFORE TAX FOR THE YEAR

355

(209)

Adjusting items to operating profit

623

705

610

870

295

340

(21)

Depreciation

Adjusted earnings before interest, tax, depreciation and amortisation for the year

Impairment expense

Restructuring costs Non-recurring gains

Notional accounting charges – unwinding of discounts

105

Adjusting items to profit before tax

1,583

1,999

Adjusted profit before tax for the year

1,938

1,790

(367)

1,583

1,999

(83)

(89)

PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Adjusting items to profit before tax Attributable tax expense on adjusting items

(118)

(145)

Adjusting items to profit for the year

1,382

1,765

Adjusted profit for the year

1,458

1,398

Exclude movements on deferred tax assets and liabilities taken to income statement

plc

6. Non Operating Income and Expenses 2009

2008

£’000

The Group announced on 2 June 2008 a strategic partnership between its 100% owned subsidiary P2P Publishing Limited (“P2P”) and Mobilis Healthcare Group Limited. This partnership also involved Sussex Research Limited, a related party (note 35) of both companies, acquiring an option for £50,000 to acquire P2P for £1.4 million in cash. The option was to last for at least thirteen months, after which the Group were able give notice of the cancellation of the option, which they have done and the option is now cancelled. The sale of this option is shown as non-operating income in 2008 net of related expenses in setting up the option agreement.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 7. Finance Costs

Bank loans and overdrafts Finance lease interest Unwinding of discount on preference shares and provisions

2009

2008

£’000

127

235

105

188

350

2009

2008

£’000

8. Investment Income

Bank interest receivable

9. Profit / (Loss) Before Taxation 2009

2008

£’000

– owned assets

152

– leased assets

Amortisation of intangible fixed assets

527

497

Impairment charges

610

870

190

268

208

(20)

Profit / (loss) before taxation is stated after charging/(crediting): Depreciation and amounts written off property, plant and equipment:

Operating lease rentals: – Land and buildings Share based payment costs Loss / (gain) on foreign exchange

Other operating expenses as disclosed on the face of the income statement include staff costs (note 4) of £4,724,000 (2008: £4,730,000) and premises costs of £379,000 (2008: £430,000). The goodwill from acquisitions were impaired by £510,000 (2008: £170,000) as detailed in note 12 and ntangible assets from acquisitions were impaired by £100,000 (2008: £700,000) as detailed in note 13.

ELECTRIC WORD

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ELECTRIC WORD

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Amounts payable to Baker Tilly UK Audit LLP and their associates in respect of both audit and non-audit services are as follows: 2009

2008

£’000

– the audit of the company’s subsidiaries pursuant to legislation

– other services relating to taxation

– services relating to corporate finance transactions involving the company or its subsidiaries

144

133

Fees payable to the company’s auditor for the audit of the company’s annual accounts Fees payable to the company’s auditor and its associates for other services:

– other services

Fees in respect of other services relates to the additional work required for the transition to accounting under IFRS and submission of share option forms (2008: transition to accounting under IFRS). 10. Taxation 2009

2008

£’000

UK corporation tax on profits of the period

359

253

Adjustment to prior year

(45)

(1)

324

262

(118)

(145)

206

117

Current tax:

Overseas tax suffered Total current tax Deferred taxation: Origination and reversal of timing differences (note 16) Tax on profit on ordinary activities

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.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 10. Taxation (contiuned)

The total tax charge can be reconciled to the accounting profit as follows: Factors affecting tax charge for the period

2009

2008

£’000 Profit / (loss) on ordinary activities before tax 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%)

£’000

355

(209)

(60)

Expenses not deductible for tax purposes (principally amortisation and impairment)

149

(30)

Recognition of tax losses for prior years

(34)

(10)

(209)

100

261

(125)

Effect of:

Tax losses not recognised

(45)

(12)

(1)

Share based payments

(26)

Overseas taxation

(4)

206

117

(56)

Over provision in prior year

Tax expense and effective rate for the year

11. Earnings / (Loss) Per Ordinary Share

The calculation of earnings / (loss) per ordinary share is based on the following: 2009 Weighted average number of shares Adjustment in respect of SIP shares Weighted average number of shares used in basic earnings per share calculations Dilutive effect of share options Dilutive effect of warrants Weighted average number of shares used in diluted earnings per share calculations

Basic and diluted earnings

2008

Number

167,932,279

144,434,481

(859,007)

(1,096,794)

167,073,272

143,337,687

1,114,970

3,320,637

6,313,324

7,045,530

174,501,566

153,703,854

2009

2008

£’000

(367)

Adjustment to earnings (Note 5)

1,382

1,765

Adjusted basic and diluted earnings figure

1,458

1,398

Basic earnings / (loss) per share

0.05p

(0.26)p

Diluted earnings / (loss) per share

0.04p

(0.26)p

Adjusted basic earnings per share

0.87p

0.97p

Adjusted diluted earnings per share

0.84p

0.90p

Earnings per share

Adjusted earnings per share

ELECTRIC WORD

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ELECTRIC WORD

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12. Goodwill Group 2009

2008

£’000

Cost 9,378

8,861

Acquisition of subsidiaries

504

Additional goodwill recognised during the year relating to prior year acquisitions

9,378

567

397

1 December

30 November Accumulated impairment losses 1 December Impairment losses for the year 30 November

510

170

1,077

567

8,301

8,811

Carrying amount 30 November

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 3. The carrying amount of goodwill has been allocated as follows: 2009

2008

£’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 impairments in the periods reported are as disclosed in note 9. 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 longterm 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

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 12. Goodwill (continued)

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.

ELECTRIC WORD

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ELECTRIC WORD

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13. Intangible Assets Group

Company

Publishing titles

Other acquired assets

Computer software

Total

Computer software

£’000

2,889

185

118

3,192

663

674

3,552

185

129

3,866

Cost 1 December 2007 Additions 30 November 2008 Additions Disposals 30 November 2009

3,557

185

136

(6)

3,878

115

204

397

497

Amortisation 1 December 2007 Charge for the year

700

30 November 2008

Impairment charge (note 9)

1,171

173

1,401

Charge for the year

467

527

Disposals

(6)

100

1,738

185

2,022

30 November 2009

1,819

1,856

30 November 2008

2,381

2,465

Impairment charge (note 9) 30 November 2009

(6)

Carrying amount

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 impairments in the periods reported are as disclosed in note 9.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 13. Intangible Assets (continued)

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.

ELECTRIC WORD

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ELECTRIC WORD

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14. Property, Plant and Equipment

group

Leasehold property improvements

Computer equipment

Website design

Fixtures, fittings & equipment

Total

£’000

218

215

188

684

Cost 1 December 2007 Additions 30 November 2008

141

181

222

240

329

865

Additions

111

Disposals

(1)

(10)

(11)

224

243

422

965

194

373

30 November 2009 Depreciation 1 December 2007 Charged in the year

128

30 November 2008

122

217

127

501

Charged in the year

182

Disposals 30 November 2009

(1)

(10)

(11)

167

235

208

672

214

293

100

202

364

Net book value 30 November 2009 30 November 2008

The net book value of leasehold property improvements for Group and Company include £29,000 (2008: £59,000) in respect of assets held under finance leases. The leases are secured against the assets. Note 34 discloses the contractual commitments for the acquisition of property, plant and equipment the Group had entered into as at 30 November 2009.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 14. Property, Plant and Equipment (continued)

Company

Leasehold property improvements

Computer equipment

Website design

Fixtures, fittings & equipment

Total

£’000

180

196

188

578

Cost 1 December 2007 Additions

184

209

188

596

Additions

30 November 2008

Disposals

(65)

186

145

188

534

1 December 2007

181

343

Charged in the year

30 November 2008

109

195

120

437

Charged in the year

(65)

146

143

162

465

30 November 2009

30 November 2008

159

30 November 2009 Depreciation

Disposals 30 November 2009 Net book value

ELECTRIC WORD

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ELECTRIC WORD

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15. Investments

The Company holds more than 20% of the share capital of the following companies, all of which are incorporated in England. Subsidiary undertakings:

Class of shareholding

% of shares held

Nature of business

Electric Word Publishing Limited

Ordinary

100%

Dormant

Optimus Professional Publishing Limited

Ordinary

100%

Publisher

Optimus Publishing Limited

Ordinary

100%

Dormant

Lottery Monitor Limited

Ordinary

100%

Dormant

Peak Performance Publishing Limited

Ordinary

100%

Dormant

PFP Publishing Limited

Ordinary

100%

Dormant

DMWSL 370 Limited

Ordinary

100%

Dormant

SBG Companies Limited

Ordinary

100%

Publisher

SportBusiness Event Publishing Limited *

Ordinary

100%

Dormant

SportBusiness.com Limited *

Ordinary

100%

Dormant

SportBusiness Group Limited *

Ordinary

100%

Dormant

TV Sports Markets Limited *

Ordinary

100%

Dormant

Arksports Limited

Ordinary

100%

Dormant

I-Gaming Business Limited *

Ordinary

70%

Publisher

Incentive Plus Limited

Ordinary

100%

Mail order

Incentive Publishing Limited *

Ordinary

100%

Dormant

Smallwood Publishing Limited *

Ordinary

100%

Dormant

P2P Publishing Limited

Ordinary

100%

Publisher

Speechmark Publishing Limited

Ordinary

100%

Publisher

My Child Limited

Ordinary

100%

Publisher

Ordinary

100%

Dormant

Special Education Publishing Limited * Indirectly held

1 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.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 15. Investments (continued) Company

2009

2008

Shares in subsidiary undertakings

Loans to subsidiary undertakings

£’000

Total

Shares in subsidiary undertakings

Loans to subsidiary undertakings

Total

£’000

Cost: 8,455

2,595

11,050

7,860

2,595

10,455

Additions

595

Disposal to other group undertakings

8,455

2,595

11,050

8,455

2,595

11,050

2,684

122

2,806

2,684

5,649

2,595

8,244

5,771

2,595

8,366

At 1 December

At 30 November Amounts written off: At 1 December Impairment in the year At 30 November Net book value: At 30 November

The company tests investments annually for impairment or more frequently if there are indications that an investment might be impaired. The cash generating units (‘CGU’) are tested as disclosed in note 13. In 2009 one asset has been deemed to be impaired. Special Education Publishing Limited, value of £450,000, is impaired by £122,000 to reflect some lower expectations across the titles but also the fact that two titles are now included in other of the Group’s product offerings. The other assets are not deemed to be impaired and would require substantial decreases in their 2011 forecast cash flows to be calculated as impaired, except for Incentive Plus. This is not deemed to be impaired even after considering sensitivities as it is felt that trading is at a low at present but is expected to improve both in the market and from internal actions taken, not least on its marketing efforts.

ELECTRIC WORD

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ELECTRIC WORD

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16. Deferred Tax Group

Company

2009

2008

2009

2008

£’000

Expected to be realised in year ended 30 November 2010

454

535

120

122

Non-current

257

211

711

746

120

122

(432)

(625)

(2)

(79)

(51)

(5)

(511)

(676)

(2)

(7)

200

118

115

Deferred tax assets

Deferred tax liabilities Expected to be realised in year ended 30 November 2010 Non-current Net position at 30 November Group

1 December 2007 (Charge) / credit to income for the year

Capital allowances

Tax losses

Goodwill and Intangible assets

£’000

726

(782)

515

464

(3)

(71)

296

(77)

145

Other

Total

(Charge) / credit to equity for the year

(366)

Acquisition

(184)

(173)

666

(670)

(Charge) / credit to income for the year

30 November 2008

(89)

161

118

(Charge) / credit to equity for the year

577

(509)

130

200

30 November 2009

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. Company

Capital allowances

Tax losses

Other

Total

£’000

1 December 2007

419

450

(Charge) / credit to income for the year

(Charge) / credit to equity for the year

(366)

30 November 2008

115

(Charge) / credit to income for the year

(23)

(9)

(Charge) / credit to equity for the year

30 November 2009

118

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 17. Inventories Group 2009 Book inventories

Company 2008

2009

2008

£’000

1,304

1,223

A charge of £160,000 (2008: £7,000) within cost of sales was expensed in the year to write inventories down, with a carrying amount of £160 (2008: £7,000), down to £nil (2008: £nil). 18. Trade And Other Receivables Group

Company

2009

2008

2009

2008

£’000

3,108

2,705

3,575

2,770

124

110

Due within one year: Trade receivables Amounts owed by group undertakings Other receivables Prepayments and accrued income

354

424

129

130

3,560

3,253

3,814

2,947

Due in more than one year: Other receivables

3,560

3,253

3,814

2,947

The average credit period taken on sales of goods is 57 days (2008: 49 days). Standard terms are thirty days but many of the Group’s goods and services, such as subscription renewals, will be invoiced in advance of the term. An allowance is maintained for estimated irrecoverable amounts from the sale of goods which stands at the balance sheet date as £575,000 (2008: £149,000). This allowance has been made with reference to past default experience. The Directors consider that the carrying amount of trade and other receivables approximates to their fair values. The Group’s exposure to credit risk and impairment losses related to trade and other receivables are disclosed in Note 25. The Group holds no collateral against these receivables at the balance sheet date and does not charge interest on its overdue receivables.

ELECTRIC WORD

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ELECTRIC WORD

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19. Borrowings Group

Company

2009

2008

2009

2008

£’000

Bank loans

1,500

1,601

1,500

1,601

Other loan

600

1,500

2,201

1,500

2,201

Non-current

Current Bank overdrafts

Bank loans

208

Other loan

600

863

600

838

The effective interest rates are as follows: Group

Company

2009

2008

2009

2008

£’000

Bank loans (2.25% over LIBOR)

1,500

Bank loans (2.75% over LIBOR)

309

Other loans (2.75% over LIBOR)

600

1,200

600

1,200

2,100

3,009

2,100

3,009

At 30 November there were the following committed undrawn borrowing facilities expiring as follows: Group

Company

2009

2008

2009

2008

£’000

750

In more than one year but not more than two years

In more than two years

750

In one year or less

The weighted average interest rate implicit in the group’s bank loans at 30 November 2009 was 3.40% (2008: 8.05%) and the weighted average period until maturity was 1.5 years (2008: 1.8 years). The directors estimate that the fair value of the Group’s borrowings is not significantly different to the carrying value.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 19. Borrowings (continued)

Other principal features of the Group’s borrowings are as follows: • The bank overdraft facility for £750,000 (2008: £750,000) is repayable on demand and is at an effective interest rate of 2.5% over base rate. • The bank loans are guaranteed by material subsidiaries of the Group. The loan of £1,500,000 is repayable on the 31 May 2011. • Other loans relate to borrowings from Sussex Research Limited, a related party (note 35). The weighted average interest rate implicit in other loans at 30 November 2009 was 3.90% (2008: 8.21%) and the weighted average period until maturity was 0.4 years (2008: 1.4 years). The loan is unsecured and repayable on the 30 April 2010. 20. Trade And Other Payables Group 2009 £’000 Trade payables Amounts due to group undertakings

Company 2008

2009

2008

£’000

710

1,053

147

2,469

1,809

474

510

239

149

Accruals

1,318

1,231

328

335

Total current

2,502

2,794

3,074

2,440

Other payables

Trade, other payables, and accruals principally comprise amounts outstanding for trade and ongoing costs. The average credit period taken for trade purchases is 26 days (2008: 35 days). 21. Obligations Under Finance Leases Group and company

Minimum lease payments

Present value of minimum lease payments

2009

2008

2009

2008

£’000

Amounts payable under finance leases: In one year or less Within two to five years Less: future finance charges Present value of minimum lease payments

ELECTRIC WORD

plc

(3)

(10)

ELECTRIC WORD

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Group and company 2009

2008

£’000

Current

Non-current

Total current

It is the Group’s policy to lease certain of its leasehold property improvements under finance leases. The weighted average term of the finance leases remaining at 30 November 2009 is 0.7 years (2008: 1.2 years). For the year ended 30 November 2009, the average effective borrowing rate was 29% (2008: 29%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in Sterling. The fair value of the Group’s lease obligations approximates to their carrying amount. The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets. The net book value of the secured assets is disclosed in note 14. 22. Deferred Income Group

Company

2009 Subscription and events fees received in advance

2008

2009

2008

£’000

3,291

3,880

23. Provisions

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

Company

2009

2008

2009

2008

£’000

255

1,008

250

913

Utilised during the year

(260)

(807)

(250)

(717)

1 December Increase in year Unwinding of discount

30 November

255

250

Included in current liabilities

255

250

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.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 24. Preference Shares Classified as a Liability Group and company Convertible redeemable preference shares

2009

2008

£’000

1,000

Authorised: 1,000,000 convertible redeemable preference shares of £1 each 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. 25. Financial Instruments

The Group’s activities expose the Group to a number of risks including capital risk management, market risk (foreign currency risk and interest rate risk), liquidity risk and credit risk. The policies for managing these risks are regularly reviewed and agreed by the Board. It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken. Capital management The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade in the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to minimise its cost of capital. The Group in particular reviews its levels of borrowing (note 19) and the repayment dates, setting these out against forecast cash flows and reviewing the level of available funds. The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to holders of the parent, comprising issued share capital, reserves and retained earnings. Consistent with others in the industry, the Group reviews the gearing ratio to monitor the capital. This ratio is calculated as the net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity (including capital, reserves and retained earnings). This gearing ratio will be considered in the wider macro economic environment. With the current restraints on availability of finance and economic pressures the Group has lowered its gearing ratio expectations and has reduced debt considerably in the period.

ELECTRIC WORD

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ELECTRIC WORD

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Categories of financial instruments Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements. Group

Company

2009

2008

2009

2008

Notes

£’000

Trade receivables

3,108

2,705

Other receivables

124

3,685

2,818

Financial assets Loans and receivables

Accrued income Cash and cash equivalents

704

395

223

3,944

3,259

3,908

2,821

Total financial assets Financial liabilities Amortised cost Bank overdraft

Bank loans

1,500

1,809

1,500

1,809

Other loan

600

1,200

600

1,200

Finance leases

Trade payables

710

1,053

147

Other payables

474

510

2,708

1,958

Accruals

1,318

1,231

318

335

929

255

250

Preference shares Deferred consideration Total financial liabilities

4,609

7,068

5,171

6,684

Liquidity risk Cash balances are placed so as to maximise interest earned while maintaining the liquidity requirements of the business. When seeking borrowings, the directors consider the commercial terms available and, in consultation with their advisers, consider whether such terms should be fixed or variable and are appropriate to the business. The directors review the placing of cash balances on an ongoing basis. Any surplus cash balances during the year were kept in standard accounts at standard bank interest rates. The financial assets of the group at 30 November 2009 were mainly designated in sterling and earned floating rate standard bank interest. These are disclosed under cash at bank and in hand of £704,000 (2008: £395,000). The Group would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows through effective cash management. In addition, the Group maintains a committed undrawn bank facility of £750,000 (2008: £750,000) which can be accessed as considered necessary. This facility is subject to annual renewal and any borrowings under it are repayable on demand.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 25. Financial Instruments (continued)

Interest rate risk The Group and company’s interest rate exposure arises mainly from the interest bearing borrowings. Contractual agreements entered into at floating rates expose the entity to cash flow risk while the fixed rate borrowings expose the entity to fair value risk. The tables below show the Group’s financial assets and liabilities split by those bearing fixed and floating rates and those that are non-interest bearing. Interest rate risk Fixed rate

Floating rate

Non-interest bearing

Total

£’000

Cash and cash equivalents

704

Trade and other receivables

3,240

704

3,240

3,944

At 30 November 2009

Trade and other payables

2,502

Borrowings

2,100

2,502

4,609

Cash and cash equivalents

395

Trade and other receivables

2,864

395

2,864

3,259

Obligations under finance leases At 30 November 2008

Trade and other payables

2,794

Borrowings

3,064

Obligations under finance leases Other financial liabilities

1,184

3,064

3,978

7,068

The Group has derived a sensitivity analysis based on a 1% change in the floating interest rate: 2009

2008

£’000

(21)

(31)

Impact on equity and profit after tax 1% increase in base rate of interest 1% decrease in base rate of interest

ELECTRIC WORD

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ELECTRIC WORD

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The undiscounted contractual cash flows, including interest payments, are set out in the tables below. UNDISCOUNTED CONTRACTUAL CASH FLOWS Group

In less than one year

Between one and two years

Between two and five years £’000

Total

£’000

Bank loans

1,547

1,598

£’000

Other loans

610

Finance leases

Deferred consideration

Other liabilities

2,502

At 30 November 2009

3,170

1,547

4,717

Bank loans

330

1,712

2,042

Other loans

670

622

Finance leases Deferred consideration

1,292 36

255

Other liabilities

2,794

987

3,781

At 30 November 2008

4,075

3,331

7,406

UNDISCOUNTED CONTRACTUAL CASH FLOWS Company

In less than one year

Between one and two years

Between two and five years

Total

£’000

Bank loans

1,547

1,598

Other loans

610

Finance leases Deferred consideration Other liabilities

3,074

At 30 November 2009

3,742

1,547

5,289

Bank loans

330

1,712

2,042

Other loans

670

622

Finance leases Deferred consideration

1,292 -

250

Other liabilities

2,440

987

3,427

At 30 November 2008

3,716

3,331

7,047

The terms, security and repayment information on these borrowings are given in note 19. Deferred consideration and other liabilities are not interest bearing and unsecured. Foreign exchange risk The Group and Company operates principally in the United Kingdom and as such the majority of the Group and Company’s financial assets and liabilities are denominated in sterling and there is no material exposure to exchange risks.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 25. Financial Instruments (continued)

The Group and Company does suffer some exposure to exchange risk as a proportion of its business is overseas. Where the Group and Company enters into significant contracts denominated in overseas currencies it is not currently the Group and Company’s policy to mitigate exchange risk by entering into forward currency contracts. The Group and Company attempt to mitigate its exposure by offsetting liabilities against foreign currency receipts as far as is possible. Credit risk The Group’s principal financial assets are cash and cash equivalents, trade and other receivables and accrued income which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk primarily relates to trade and other receivables and accrued income. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The following table provides analysis of trade receivables that were past due at 30 November, but not impaired. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the current financial status of the customers. Ageing of receivables past due but not impaired 2009

2008

£’000

30-60 days

551

523

60-90 days

344

217

90-120 days

501

177

1,465

993

Greater than 120 days

The Group’s policy is that debt is payable within 30 days. The older debt above will include items billed, such as conferences and subscription renewals, ahead of the delivery so some payments may be held back. It is Group policy that unpaid subscriptions are stopped after one issue so the older debt not provided has not been earned in the income statement. Movement in the provision for impairment for trade receivables: 2009

£’000

Opening balance at 1 December

(149)

(218)

Provision for receivables impairment

(586)

(149)

149

218

(586)

(149)

Receivables written off during the year Closing balance at 30 November

2008

£’000

ELECTRIC WORD

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Fair value The directors consider that the fair values of the Group’s financial instruments do not significantly differ from their book values. 26. Share Capital 2009

2008

£’000

3,000

875

Authorised: 300,000,000 ordinary shares of 1p each 875,000 convertible preference shares of £1

The preference shares have neither dividend nor voting rights. Allotted, issued and fully paid:

2009

2008

Ordinary shares

Preference shares

Ordinary shares

Preference shares

As at 1 December Issue of share capital

£’000

1,450

875

1,424

745

875

Options exercised

Preference shares converted

(875)

2,288

1,450

875

As at 30 November

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:

At 1 December 2007 20 March 2008

Exercise of share options

11 June 2008

Exercise of share options

At 30 November 2008

Number of shares

Total Share capital

Share price at issue Pence

Number

£’000

142,364,441

1,424

2,000,000

5.000p

600,000

5.875p

144,964,441

1,450

17 March 2009

Exercise of share options

2,700,000

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

4.000p

228,750,973

2,288

At 30 November 2009

There have been no shares issued since the year end.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 27. Capital And Reserves Group

Share capital

Preference share capital

Share premium

Other reserves

Reserve for own shares

Reserve for share based payments

Retained earnings

Total

£’000

1 December 2007

1,424

3,039

105

(103)

522

349

5,336

Share issues

875

(454)

514

Share based payment costs

208

Tax taken directly to equity

(366)

(365)

Loss for the year

(367)

1,450

875

3,106

(349)

(103)

364

(17)

5,326

772

1,982

2,754

(223)

(875)

355

454

Share based payment costs

Tax taken directly to equity

Profit for the year

2,288

5,220

105

(103)

472

8,041

30 November 2008 Share issues Share issue costs Preference share conversion

30 November 2009

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 (note 26). The reserve for own shares relates to the employee Share Incentive Plan (note 31 a) under which the Group owns 1,218,575 shares (2008: 1,218,575 shares).

ELECTRIC WORD

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ELECTRIC WORD

Company

1 December 2007 Share issues Share based payment costs

Share capital

Preference share capital

Share premium

Other reserve

Reserve for share based payments

Retained earnings

Total

£’000

1,424

3,039

522

(94)

4,891

875

(454)

514

208

Tax taken directly to equity

(366)

(62)

(428)

Loss for the year

(263)

1,450

875

3,106

(454)

364

(419)

4,922

772

1,982

2,754

(223)

30 November 2008 Share issues Share issue costs Preference share conversion

(875)

355

454

Share based payment costs

Tax taken directly to equity

Loss for the year

(262)

2,288

5,220

472

(681)

7,299

30 November 2009

plc

28. 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% (note 15) 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.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 29. Business Combinations

Cash paid net of cash acquired: Date of acquisition

2009

2008

£’000

Current year acquisitions: None Prior year acquisitions: Special Education Publishing Limited

29 February 2008

Pre 2008 acquisitions: My Child Limited1

23 November 2007

Speechmark Publishing Limited2

8 October 2007

Smallwood Publishing Limited

1 May 2007

406

250

412

260

855

1 In respect of My Child Limited deferred cash consideration of £313,000 was paid on 31 May 2008. 2 In respect of Speechmark Publishing Limited deferred cash consideration of £250,000 was paid in April 2009, £250,000 was paid in October 2008 and £154,000 including interest was paid in March 2008. 3 In respect of Smallwood Publishing Limited deferred cash consideration of £10,000 was paid in July 2009 and a total of £8,000 was paid in May and November 2008.

Special Education Publishing Limited (SEP) On 29 February 2008 the Group exercised its option to acquire 100% of the issued share capital of SEP for a consideration of 875,000 £1 preference shares convertible at 13.25 pence and £25,875 of related costs. A fair value adjustment of £453,679 has been made to the carrying value of the preference shares as the share price at acquisition date was 6.38 pence. SEP

Intangible assets Trade and other receivables

Fair value previously reported

Fair value adjustment

Adjusted Fair value

£’000

657

131

Trade payables

(328)

Deferred revenue

(341)

Net assets

Deferred tax recognised on losses

130

Goodwill

320

Total consideration

450

421

450

Satisfied by: Consideration – preference shares at fair value Acquisition costs

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SEP is a specialist education publisher with three established titles. The intangibles acquired represent the titles. These were valued, in line with the Group’s standard method, based on discounting their future projected cash flows over ten years, the same period as which the resultant intangibles will be amortised. This was seen to be a reasonable period through which the titles can be fully expected to run. The goodwill represents the commercial value of the deferred subscription liability acquired and the scale and presence it brings to the Group’s education sector, not least in being able to fold older products in to these titles, build an advertising presence and offer sponsorship and exhibition packages in conjunction with the Group’s events in the sector. 30. Analysis of Changes in Net Debt Group

At 1 Cash flow December 2008

Other non-cash changes

At 30 November 2009

£’000

Cash at bank and in hand

395

309

704

Overdraft

(55)

340

364

704

Bank loans due within one year

(208)

309

(101)

Other loans due within one year

(600)

600

(600)

(19)

(7)

(827)

928

(708)

(607)

Net cash

Finance leases due within one year Debt due within one year Bank loans due after one year

(1,601)

101

(1,500)

Other loans due after one year

(600)

600

(7)

Debt due after one year

(2,208)

708

(1,500)

Net debt

(2,695)

1,292

(1,403)

Finance leases due after one year

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. 31. Share Based Payment

The Company has the following option or share ownership schemes and warrants in issue. All the schemes use the Monte Carlo valuation method with the exception of the Long Term Incentive Plan which uses the Black Scholes Method. The relevant inputs for each scheme have been outlined below: 2009 Black Scholes Expected life (years) Risk free rate (%) Volatility (%)

2008 Monte Carlo

Black Scholes

Monte Carlo

3-3.25

3-5

4.804 – 4.932

4.581 - 5.172

4.804 – 4.932

4.581 - 5.172

30.473 – 31.117

53.524 – 57.562

30.473 – 31.117

53.524 – 57.562

Weighted average share price (p)

3.69

5.44

Weighted average exercise price (p)

1.00

1.00 – 5.40

1.00

1.00 – 9.15

Dividend yield (%)

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 31. Share Based Payment (continued)

The volatility of the Company’s share price on each date of grant was calculated as the average of the standard deviations of daily continuously compounded returns on the stock of the Company, calculated back over a period commensurate with the expected life of the option. For the earlier awards, the volatility was calculated back from the date of grant to 29 March 2000, which was the date of admission. The riskfree rate used is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity equal to the expected life of the option. It was assumed that options would be exercised within two years of the date on which they vest. The number of options exercisable for each scheme at the year end is based on the year end share price. There have been no transactions with non employees. a. Share Incentive Plan In September 2005, the Group introduced a SIP, under which the employees are eligible to acquire shares in the following ways: • Free Shares • Partnership Shares • Matching Shares The Free shares are available to all eligible employees and the shares must be held in the trust for a minimum period of 3 years unless the employee leaves the Company, in which case the Free shares may either be forfeited or withdrawn from the Plan. Partnership shares are available for purchase by employees at current market value. Employees can invest any amount from between £10 - £1,500 (or 10% of the employee’s salary if lower). The Partnership shares will be matched by the Matching shares on a 1 for 1 basis (2 for 1 basis in 2006 and 2005). The Partnership and Matching shares will also be held in the Trust for a minimum of 3 years unless the employee leaves the Company in which case the Free shares may either be forfeited or withdrawn from the Plan. All of the shares are purchased at fair value in the market. The cash cost of the Partnership shares was expensed in the year, see staff costs analysis in note 4. The total fair value of the options granted in the year was £nil (2008: £nil). 2009

Outstanding at the beginning of the period

2008

Number of options

Weighted average exercise price

Number of options

Weighted average exercise price

1,096,794

9.15

1,228,045

9.18

Granted during the period

Forfeited during the period

(237,787)

8.99

(131,251)

9.49

Exercised during the period Expired during the period Outstanding at the end of the period Exercisable at the end of the period

859,007

9.20

1,096,794

9.15

The weighted average remaining contractual life of share options outstanding at the end of the period was 7 years (2008: 8 years). The exercise price of the outstanding options ranges from 7.62 – 10.37 pence.

ELECTRIC WORD

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ELECTRIC WORD

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b. Long Term Incentive Plan

In November 2007, the Group introduced a Long Term Incentive Plan (‘LTIP’), under which at that time 14 members of senior management were granted a maximum of 5,658,824 share options dependent on performance criteria. No options have been granted since so the total fair value of the options granted in the year was £nil (2008: £ nil). The options, all with an exercise price of 1 pence, vest in February 2010 according to criteria related to the Company’s earnings per share performance over the previous three financial years. Vesting of the options is dependent on the Company achieving an average of at least 15% annualised adjusted earnings per share growth over the three years to November 2009. In order for all of the options to vest, adjusted earnings per share growth will need to reach 25% per year over the same period. The minimum growth but not the maximum has been achieved so a portion of the options will vest and the weighted average remaining contractual life of these options is 8 years (2008: 9 years). 2009

Outstanding at the beginning of the period

2008

Number of options

Weighted average exercise price

Number of options

Weighted average exercise price

4,625,641

1.00

4,933,333

1.00

Granted during the period

Forfeited during the period

(1,408,205)

1.00

(307,692)

1.00

Exercised during the period Expired during the period Outstanding at the end of the period Exercisable at the end of the period

3,217,436

1.00

4,625,641

1.00

c. Unapproved Share Option Scheme

These options have been awarded to key members of management and staff and are exercisable, subject to various trigger price restrictions, at any time between the third and tenth anniversaries of the date of grant and the weighted average remaining contractual life of these options is 3 years (2008: 4 years). For share options outstanding at the year end the exercise price ranged from 1-5 pence. 2009

Outstanding at the beginning of the period

2008

Number of options

Weighted average exercise price

Number of options

Weighted average exercise price

7,295,130

3.54

4,695,130

4.94

Granted during the period

2,600,000

1.00

Forfeited during the period

(2,600,000)

1.00

Exercised during the period Expired during the period Outstanding at the end of the period Exercisable at the end of the period

4,695,130

4.94

7,295,130

3.54

570,130

4.75

570,130

4.75

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 31. Share Based Payment (continued) c. Unapproved Share Option Scheme (continued)

No options were granted in the year and so the total fair value was £nil (2008: £192,000). For the Group’s options to vest where a trigger price is included, the Group’s market share price must meet that trigger. The relevant trigger prices for the options outstanding at the end of the period were 5 pence for 70,130, 7.5 pence for 300,000, 10 pence for 200,000 and 15 pence for 4,125,000 options, of which all bar the 15 pence have triggered. d. Enterprise Management Incentive Scheme

These options have been awarded to key members of management and staff and are exercisable, subject to various trigger price restriction, at any time between the third and tenth anniversaries of the date of grant and the weighted average remaining contractual life of these options is 2 years (2008: 3 years). For share options outstanding at the year end the exercise price ranged from 1.00-5.38 pence. 2009

Outstanding at the beginning of the period

2008

Number of options

Weighted average exercise price

Number of options

Weighted average exercise price

14,154,870

3.75

17,054,870

3.75

Granted during the period

1,382,184

3.25

Forfeited during the period

(900,000)

2.00

(300,000)

2.00

(2,700,000)

2.00

(2,600,000)

3.58

Exercised during the period

Outstanding at the end of the period

11,937,054

4.31

14,154,870

3.82

Exercisable at the end of the period

6,612,054

3.98

7,929,870

3.44

Expired during the period

1,382,184 options were granted in the year (2008: nil) with a total fair value of £3,000 (2008: £nil). For the Group’s options to vest where a trigger price is included, the Group’s market share price must meet that trigger. Of the options outstanding at the end of the period 200,000 had a trigger price of 12 pence and 5,125,000 of 15 pence and have not been triggered. e. Warrants

The warrants are exercisable from the date of grant until the tenth anniversary of the date of grant over ordinary shares of 1 pence each in Electric Word Publishing Limited. There is a put and call option in place whereby the warrant holders granted the Company an option to require them to sell and the Company granted the warrant holders an option to require the Company to purchase any shares in Electric Word Publishing Limited arising on the exercise of the warrants on a one for one basis in exchange for the same number of shares in the Company. All warrants outstanding at the year end had an exercise price of 1 pence.

ELECTRIC WORD

plc

ELECTRIC WORD

2009

Outstanding at the beginning of the period

2008

Number of options

Weighted average exercise price

Number of options

Weighted average exercise price

8,657,158

1.00

8,657,158

1.00

Granted during the period

Forfeited during the period

Exercised during the period

Outstanding at the end of the period

8,657,158

1.00

8,657,158

1.00

Exercisable at the end of the period

8,657,158

1.00

8,657,158

1.00

Expired during the period

plc

The weighted average remaining contractual life of share options outstanding at the end of the year was under 1 year (2008: 1 year). 32. Commitments Under Operating Leases

The minimum lease payments under non-cancellable operating lease rentals are in aggregate as follows: Land and buildings

Group

Company

2009

2008

2009

2008

£’000

Within one year

181

231

103

112

Between two and five years

312

415

103

After five years

156

234

649

880

103

215

Operating lease payments represent rentals payable by the Group for its office properties. Leases are negotiated for an average term, excluding break clauses, of 7 years (2008: 7 years) and rentals are fixed for an average of 2 years (2008: 3 years). 33. 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. 34. Capital Commitments And Contingent Liabilities

There are no capital commitments at the balance sheet date. The Group does have a contingent liability as it is still engaged in legal correspondence with the vendor of the My Child Limited business. At the current time the Board do not feel that evidence seen requires any provision to be made for the outcome of this. The Group is also engaged in a legal dispute with a competitor in the business of sport. An accrual of £75,000 has been made against this to cover both costs and any settlement, which is the directors’ best estimate of outturn based on legal advice received.

Annual Report 30 November 2009

Notes to the Financial Statements (continued) 35. Related Party Transactions

All related party balances held at November 2009 are unsecured. Subsidiaries

The Group had a related party in 2008 by nature of its 50.1% ownership of its subsidiary My Child Limited acquired in November 2007 (2009: 100% beneficial control taken in March 2009, note 15). Group undertakings were owed £1,443,000 by My Child Limited at 30 November 2008, including debt to the Company of £1,404,000, after charging it costs and allocated staff time all from the Company of £234,000. Its 70% (2008: 75%) owned subsidiary, I-Gaming Limited, is owed by other Group undertakings £1,000 (2008: £nil) and owes £179,000 (2008: £370,000) at 30 November 2009, including debt to the Company of £1,000 (2008: £126,000), after being charged costs and allocated staff time of £531,000 (2008: £357,000). Loans and services

The Group entered into a £1,450,000 short term loan agreement with Sussex Research Limited in 2008. This Company is associated with Sussex Trading Company Limited, a substantial share owner in the Group and Company, as both are ultimately controlled by Stewart Newton. The balance at November 2009 was £600,000 (2008: £1,200,000). This loan pays interest at 2.5% above LIBOR (2008: 2.5% above LIBOR rate). The remaining balance is repayable on 30 April 2010. The Board received financial advice from Trillium Partners Limited (“Trillium Partners”) in the period. Trillium Partners is a specialist media advisory firm, which is 35% owned by Stephen Routledge, a nonexecutive director of Electric Word, and as such is a related party for the purposes of the AIM Rules. Accordingly, the Directors (other than Stephen Routledge) consider, having consulted with Panmure Gordon (UK) Limited, its nominated adviser, that the terms of the fees payable to Trillium Partners are fair and reasonable insofar as the Company’s shareholders are concerned. The total fee for the advice and work is under £0.1 million.

ELECTRIC WORD

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ELECTRIC WORD

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Company

The table below sets out the transactions and balances with other group undertakings: Balance

I-Gaming Business Limited Incentive Plus Limited

2009

2008

2009

2008

£’000

126

(125)

(327)

422

569

(147)

(30)

(2)

(41)

(77)

(269)

Incentive Publishing Limited Speechmark Publishing Limited My Child Limited Optimus Professional Publishing Limited Electric Word Publishing Limited

Transactions in year

2,305

1,404

901

1,235

(1,302)

(575)

(727)

(952)

(9)

P2P Publishing Limited

(201)

(43)

(158)

168

SBG Companies Limited

(897)

(1,163)

266

(283)

Lottery monitor Limited

(3)

PFP Publishing Limited

(17)

Special Education Publishing Limited

848

529

1,106

856

319

529

The natures of the transactions with group undertakings comprise salary recharges, recharges of various trading activities, and cash draw downs. Key management personnel For details of related party transactions with key management personnel see note 4.

Annual Report 30 November 2009

The paper used within this publication has been sourced from a Chain-of-Custody certified manufacturer, operating within international environmental standards such as ISO14001 and EMAS. This is to ensure sustainable sourcing of the raw materials, sustainable production and to minimise our carbonÂ footprint.