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Espresso continues to invest in US business

publication date: Apr 30, 2012
Digital education content provider Espresso Group has reported a £551k operating loss (2010: £50k profit) for the year ended 31 July 2011, on revenue up 1% to £13.4m (2010: £13.3m) according to accounts filed recently at Companies House. The operating loss reflects the company’s increased investment in its US-based subsidiary, Espresso Education Inc, which recorded an operating loss of £1.6m (2010: £0.6m) in FY11 following investment in further product development and in a sales team to roll-out the company’s offer to US school districts. The company’s core UK business reported an operating profit of £1.1m (2010: £0.6m) on revenue down 3% to £12.4m (2010: £12.8m), representing 93% (2010: 96%) of total company revenue in FY11.


Excluding investment in its US subsidiary, Espresso Group reported an EBITDA before share-based payments and a £147k restructuring charge in FY11 of £2.6m (2010: £1.8m). The business generated a cash inflow before financing but after investment in its US business of £77k (2010: £1.2m). At the year end, Espresso had £1.1m of loan notes outstanding payable to the company’s largest shareholder Beringea LLP which the company expects to repay in FY12 and become debt free. And despite investment in the US market, Espresso had cash balances of £4.2m (2010: £4.1m) at 31 July 2011. Espresso’s decision to sell learning platform business, NetMedia Education, to Norwegian-based It’s Learning for £2.9m in 2009, has helped build the company’s cash balances.


In the UK, Primary schools still account for the lion share of the company’s core revenue (historically between 80% and 85%) and the company’s penetration of the primary school market in England is between 55% and 60%. Despite uncertainty over the level of funding available to schools in the first half of the financial year, Espresso’s renewal rates were around 93% (2010: 94%) in FY11, in part reflecting the company’s continued investment in supporting users through training.


Internationally, the company reports that despite “funding challenges” in the US, Espresso Education Inc has signed up around 600 schools and the company “anticipates strong growth” in the current year. The company partners with Illinois-based Defined Learning to localise Espresso’s offer for the US market, including aligning content to the common core standards, and Espresso also provides a weekly US news service in partnership with USA Today. Espresso’s expansion in the US has been self-funded, utilising the underlying profitability and cash generative nature of the company’s core UK business. The company anticipates that the investment in the US will broadly level out at around £1m in FY12. Espresso also reports that its Swedish service doubled revenue and school subscriber numbers in FY11 although no detailed financials are provided.


Looking ahead, Espresso is confident in the underlying strength of its services despite the UK market being “in a period of transition” and although the company expects investment in international projects to continue to be dilutive to profits in FY12, the directors believe that this investment will provide a platform for future long-term profitable growth.






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