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Espresso expects US-based subsidiary to be cash positive in 2016

publication date: Dec 2, 2012
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Digital education content provider Espresso Group has reported a £0.5m operating loss (2011: £0.6m loss) for the year ended 31 July 2012 on revenue little changed at £13.5m (2011: £13.4m). The operating loss reflects the company’s increased investment in its US-based subsidiary, Espresso Education Inc, which recorded an operating loss of £2.3m (2011: £1.6m loss) in FY12 following further investment in product development and the full year impact of the sales and marketing infrastructure costs that were hired during FY11.

The company’s core UK business reported an operating profit up 64% to £1.8m (2011: £1.1m) on revenue down 1% to £12.3m (2011: £12.4m). Espresso reports that sales growth in the company’s direct to school business during FY12 was offset by reductions in local authority spending with no material impact on renewal rates (around 95%). The increase in profitability, according to the company, was due to operational efficiencies achieved across all functional areas particularly as a result of investment in both front end production systems and a back office integrated subscription management system. Primary schools still account for the lion share of the company’s core UK revenue (historically between 80% and 85%) and the company’s penetration of the primary school market in England is estimated at around 60%.

The underlying profitability and cash generative nature of Espresso’s UK business has meant that the company’s North American investment has been funded internally. The company expects that the level of investment in North America in Espresso Elementary will continue in 2013 and that the US business will become cash positive in 2016. In November Espresso Elementary won the 2012 Tech & Learning Awards of Excellence in the “Best Upgrade Product” category.

Outside of North America, the company reports strong growth in its Swedish service which is distributed by Liber, the Stockholm-based education publisher owned by Infinitas Learning. Espresso reports that in FY12 revenue exceeded costs for the first time as the number of subscribers exceeded 500 schools. According to Espresso the improvement in performance was driven by new subscribers and renewal rates approaching levels similar to those in the UK. Espresso’s total international revenue increased 20.5% to £1.2m (2011: £1.0m) in FY12.

Excluding investment in its US subsidiary, Espresso Group reported an EBITA in FY12 before share-based payments and non-recurring items of £3.4m (2011: £2.6m). The business generated a cash outflow after investment in its US business of £523k (2011: £77k inflow). At the year end, Espresso had net funds of £2.6m (2011: £3.1m) including £1.1m of loan notes payable to the company’s largest shareholder Beringea LLP. These loan notes have been repaid since the year end. Espresso’s cash balances continue to benefit from its subscription business model – the company had £7.2m (2011: £7.2m) of deferred income at the year-end – and the company’s decision to sell its learning platform business, NetMedia Education, to Norwegian-based It’s Learning for £2.9m in 2009

Looking ahead, Espresso reports it is confident in its ability to further grow its client base and gain market share in all of its markets.


www.espresso.co.uk

 

 

 

 

 


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