RNS Number:7019Q
Future Network PLC
11 September 2000
Part 1
THE FUTURE NETWORK PLC
Interim results for the six months to 30 June 2000
The Future Network plc (LSE: FNET), the international specialist consumer
magazine and online media company, today announces its interim results for
the six months to 30 June 2000.
Key financial highlights (on a pro forma basis)*:
* Sales increase to #111.0m (1999: #86.2m) - up 29%, rate of growth
accelerating
* US magazine sales increase to #38.7m (1999: #21.2m) - up 83%
* Underlying Profits increase to #14.7m (1999: #11.8m) - up 25%
* Investment in record number of launches increased to #12.9m reduces
EBITA to #1.8m (1999: #4.3m)
* Internet revenues increase 500% to #2.4m
Key operational highlights:
* Significant investment during the period, with 17 new magazines and
five new Internet networks launched in the first half. A higher level
of investment due to increased confidence and opportunities is
expected for the second half, bringing total planned Investment up to
#33m for the year.
* Internet properties currently attracting 6.5m monthly unique visitors,
an increase of 210% over June 1999 and 35% over June 2000.
* Three year licence secured to publish Sony's Official PlayStation
magazine in the UK, underlining Future's position as the world leader
in games magazine publishing.
* Business 2.0 continues remarkable growth story - year on year US
circulation increases 43%, advertising is up 513% and it successfully
moves to a fortnightly. Successful launches in the UK in May and
Germany in August. Italian launch brought forward to October and
French launch now planned for January 2001.
* International operations further expanded with Silver Shark, the
publisher of Poland's leading PC magazine acquired in July and a new
office opened in Japan in June.
* Elisabeth Murdoch to join The Future Network plc Board as a non-
executive director (see separate release).
Commenting on the results Greg Ingham, Future's Chief Executive said
today:
"The first half has been a period of significant investment in Future,
with seventeen magazine launches, five web network launches and
subsequently the addition of Poland to our international network.
Revenues and Underlying Profitability continue to advance, up a healthy
29% and 25% respectively, and although increased investment has impacted
our headline profit figure, we are confident that our Investment plans
will accelerate the next phase of Future's growth.
"Compelling opportunities and an ever-larger network in which to roll out
proven successes mean that we have further increased the investment in new
magazines and web networks this year. Geographically, 50% of the
investment will be into the US, a business that grew Underlying Profits by
332% in this first half.
"With so many exciting developments on so many fronts, it is hard to pick
out individual highlights, but the strengthening of our position in the
games market, with the official licence for PlayStation2 in the UK is
excellent news. So too is the continued success of Business 2.0, which we
are starting to develop into a truly international brand with successful
launches completed in both the UK and Germany. I am also delighted to
welcome Elisabeth Murdoch to the Future Board and our new colleagues from
Poland and Japan to the rapidly growing Future Network.
"There's growing evidence that Future can leverage its best successes
across multiple territories. This is helping to accelerate our growth, and
we are very confident about prospects for the remainder of 2000 and
beyond."
For further information:
Greg Ingham, Chief Executive Tel: 01225 442244
The Future Network plc
James Longfield/Harriet Keen Tel: 020 7357 9477
Hogarth Partnership
* The Group underwent many structural changes during 1999. In order to
help the understanding of Future's performance the following
definitions have been used throughout this announcement:
Pro forma results: Results as if the business as constituted at Listing
in June 1999 had existed from the beginning of 1999.
Comments in this release refer to pro forma figures
for 1999 comparisons.
Underlying Profit: Operating profit before amortisation of intangible
assets excluding losses from titles launched in the
last two years and losses on Internet activity (both
referred to as Investments).
EBITA: Operating profit excluding amortisation of intangible
assets.
THE FUTURE NETWORK PLC
Interim results for the period ended 30 June 2000
Chairman's Statement
At the core of Future's success has been its ability to invent great
magazines. In the past, that innovation has taken place almost exclusively
in the UK, Future's heartland. But in the last few months there's been an
explosion of creative output from many other territories.
- In the US, a string of exciting launches is taking the company into
major new markets, including digital entertainment and business lifestyle.
Online, the highly innovative entertainment network DailyRadar.com has
seen stunning growth and driven launches in the UK and Germany this year,
with other European versions to follow.
- In France an all-new format, high-circulation, low cover price gaming
title Jeux Video is completely different from anything Future has done
before. Readers and advertisers alike have enthusiastically embraced its
launch issue.
- In Germany, a one-shot magazine Kids Games looks set to sell over
100,000 copies and will launch on a monthly schedule this Autumn. A
stunningly executed Business 2.0 launched in August.
- In Italy, a new approach to advertising sales will result in the October
launch of Business 2.0 having the highest number of ad pages ever achieved
at launch by any Future title.
It would appear that Future's trademark entrepreneurial launch culture is
pouring into all parts of the group, creating the products that will drive
our growth many years into the future.
What makes these launches doubly exciting is that there's growing evidence
that Future can leverage its best successes across multiple territories.
For years, PC Gamer has been a worldwide brand demonstrating our ability
to roll out strong models globally. But the successful European launches
of Business 2.0 are creating a new global brand, and the UK titles T3 and
Total Film have generated exciting new launches in Germany, Italy and the
US.
When we look down our list of existing magazines and networks, as well as
those in the pipeline, we see plenty more potential to repeat this
profitable formula. These brand extensions are inherently lower risk
launches, because they come to the starting block with proven credibility.
This is how, in a year in which the video games market has shown a
cyclical downturn, Future has been able to achieve record sales growth.
And it is also one of the reasons why we are confident that the increased
Investment of #33 million in new magazines and web networks in 2000 will
pay back strongly in the coming years.
So my take-away from the past six months is that Future's globalisation
strategy is working: not just in raising the group's profile, but in
delivering a rapidly growing number of genuine global brands while
replicating our strong entrepreneurial launch culture throughout the
world. And there is much more to come.
Finally, in April we announced that Michael Penington had joined the
Future Board after 16 years at US investment bank Morgan Stanley Dean
Witter, most recently as an Executive Director in the Corporate Finance
Department. I am very pleased to be able to announce that our non-
executive contingent has been strengthened further with the news that
Elisabeth Murdoch has agreed to join the Board as a non-executive
director. Elisabeth joins us from British Sky Broadcasting, where she was
most recently Managing Director of Sky Networks. She is one of the
world's smartest media executives and her extensive experience and broad
range of industry contacts will be of tremendous benefit to Future.
Onward!
Chris Anderson
THE FUTURE NETWORK PLC
Interim results for the period ended 30 June 2000
Chief Executive's Review
Future has accelerated its rate of growth in 2000, underlining its
position as one of the world's fastest growing publicly quoted media
companies. The first half of 2000 has been a period of significant
further progress. Revenues continue to grow strongly, up 29% on 1999 at
#111.0 million, with a particularly powerful performance from our US
business, which was up 83% to #38.7m. Investment in new projects has
increased from #7.5m to #12.9m during the period, predominantly focused on
developing international versions of already-successful magazines and web
networks.
In the first half, we successfully launched a further 17 magazines across
the Group and added five new Internet networks to our portfolio. The
effect of these investments was that operating profits before goodwill
amortisation were down #2.5 million to #1.8 million for the period,
resulting in a loss before tax of #13.5 million for the period (1999 loss
of #9.1 million).
There are five key elements to understanding our performance in this first
half:
Underlying Profits
--------------------------------------------------------------------------
Underlying profitability for June June
the whole Group 2000 1999
#m (pro forma) % change
--------------------------------------------------------------------------
Underlying Profits 14.7 11.8 25%
Magazine Investment (9.3) (6.6) 41%
Internet Investment (3.6) (0.9) 300%
Operating Profit - before 1.8 4.3 (58%)
goodwill amortisation
--------------------------------------------------------------------------
We focus on building long term value in the business. The best measure of
this is, we believe, the growth in Underlying Profits - that is, the
aggregate of existing profit streams prior to investment in new magazines
and web sites.
We then decide how much of our total profits to reinvest into generating
incremental growth. This first half, Underlying Profits rose 25% to
#14.7m. Although the #12.9 million Investment impacts on the headline
profit figure, it has also helped to accelerate our growth, with revenues
rising by 29% to #111.0m. The majority of this Investment happened in the
second quarter, meaning that in the short term the cost impact is
heightened and the revenue benefit minimised.
Investment
Compelling opportunities and an ever-larger network in which to roll out
proven successes mean that we have further increased the investment in new
magazines and web networks this year to #33m. Geographically, 50% of the
Investment will be into the US, a business that grew Underlying Profits by
332% in this first half.
Approximately 45% of the magazine investment relates to taking proven
successes such as Business 2.0, T3 and Total Film into other Group
countries. A further 24% is being invested in additional products in
existing market sectors, such as further Internet magazine and especially
new PlayStation 2 magazines to coincide with the machine's launch in
November. The remaining 31% is into relatively new areas, such as music
magazine Revolution and business lifestyle title, Fuse - both in the US.
Since our plans for the year were outlined in March, a further #8 million
will be invested in 2000, principally in Fuse, large scale games magazines
in the US and UK, bringing forward Business 2.0 in Italy, additional
PlayStation 2 magazines to build share swiftly in Europe, Kids Games in
Germany, and additional Internet activity.
Games market
Future's overall revenue and Underlying Profit growth has been achieved
despite the expected temporary down cycle in the games market - games
being one of the mainstays of our Underlying Profits. For games, this is
the Year of the Gap, as the market digests the transition from
PlayStation1 to Playstation2. This transition has inevitably hit both
revenues and profits as expected in each of our countries. But during
this interregnum, we have built market share in the UK and US and beaten
off a strong rival in the US. Most crucially we have underlined Future's
position as the world-leading publisher of games media through the
exclusive Official Magazine deal for Sony's PlayStation in the UK, an
enormously significant publishing victory. We believe that this positions
us very strongly for the upswing in 2001 and beyond.
Business 2.0
Business 2.0, has continued its extraordinary growth in the US with
advertising revenues up by 513% and circulation up by 43%. This has been
fuelled by taking the US magazine from monthly to fortnightly in May -
which will have a significant revenue and profit impact in the second half
of 2000 and more so in 2001 - making it one of the greatest publishing
successes in the US in recent years.
At the same time, Business 2.0 is being developed in to an international
brand with successful launches in the UK (May), Germany (August) and Italy
(October), non-group licences (currently Latin America, South Africa,
Korea and Israel), and from the Business 2.0 conference we are holding
this autumn in the US. We have also made a 49% investment in the US
company TED Conferences in July, which will create considerable synergies
with Business 2.0.
International roll-out of magazines and websites
Future seeks to gain substantial leverage from successful magazines and
web networks from one territory being rolled out across other parts of the
Group. In addition to Business 2.0, other examples in the first half
include the UK's T3 launching in Germany, and the US games network,
DailyRadar.com, debuting in the UK and Germany. Others later in the year
include T3 and Total Film in the US, Jeux Video from France into the UK,
T3 and DailyRadar.com in Italy and Business 2.0 in Germany and Italy.
Though these comprise a substantial investment this year - and
approximately 45% of total magazine investment - their prior success gives
considerable confidence.
Other international developments
We have continued our strategy to develop Future internationally with the
acquisition in July of Silver Shark, the publisher of Poland's leading PC
magazine, which provides an excellent platform in Poland and for launching
magazines and websites in to neighbouring Eastern European markets.
Additionally, we now have 137 individual magazine licencees in 23 non-
Group countries. Finally, we opened an office in Japan.
Outlook
In the second half of the year, our stronger trading period, we expect
continued strong revenue growth and further increases in Underlying
Profitability. It will also see us continuing to invest.
We expect to have launched over 30 new magazines by the end of this year
and this underlines our continued confidence in the strength of our
business and provides a solid platform for further acceleration of our
growth.
Greg Ingham
Review of operations
(All operating profits included in the review exclude amortisation of
intangible assets.)
United Kingdom
2000 1999
Print Print
#m (pro forma) Total Total % change
--------------------------------------------------------------------------
Revenues 49.4 46.0 7%
Operating profit 4.8 7.3 (34%)
Underlying Profit 6.9 7.9 (13%)
--------------------------------------------------------------------------
Future's UK business, the largest part of the Group, has continued to make
good progress in the first half despite the anticipated slow down in the
games market.
We continued to build on our market leading positions in both the overall
games market, where circulation share increased from 49% to 52% year on
year, and within the PlayStation sector - up from 53% to 60%. These
increases were particularly pleasing given the launches of two major
competitive PlayStation and PC magazines during the period. We were also
delighted to announce in July that we have been awarded a three year
licence by Sony to publish the Official PlayStation2 magazine, which was
secured against intense competition from rival publishers. The
strengthening of our market position and the award of the PS2 licence give
us great confidence that we are well positioned to benefit from the
improvement in demand stimulated by the launch of PS2 in November this
year. Short term, however, the games market interregnum has clearly
reduced Underlying Profit.
Outside of the games segment, Future gained share in all of its key
markets: Internet, technology, and football. The most remarkable growth
has come in our Internet magazine portfolio, where copy sales rose 112%
year-on-year, giving us an increase in market share from 43% to 47%. In
January 2000 we strengthened our position in the home entertainment and
music sectors with the purchase of Hi-Fi Choice, Home Entertainment, Metal
Hammer and Classic Rock magazines from Dennis Publishing and these titles
are performing in line with expectations.
The most significant launch during the period was the launch of the UK
edition of Business 2.0, which took place in May. Circulation is on track
to meet its targets and the response from advertisers to this publication
has been highly encouraging.
United States
2000 1999
Print Print
#m (pro forma) Total Total % change
--------------------------------------------------------------------------
Revenues 38.7 21.2 83%
Operating profit/(loss) 3.7 (2.9) -
Underlying Profit 8.2 1.9 332%
--------------------------------------------------------------------------
With revenues up 83% and Underlying Profits surging 332%, Future's US
operations have accelerated the exceptional progress achieved in 1999 in
the worlds biggest media market. Business 2.0, the magazine of the New
Economy, continues its remarkable growth story. Year on year, advertising
revenue leapt by 513% and guaranteed circulation increased 43% to 300,000.
The magazine moved to a fortnightly format in May, which will have a
powerful effect on both revenues and profits in the full year. The
magazine continues to win national magazine and computer press awards, and
in October will launch its first conference. The link up with TED
Conferences, in which a 49% investment has been made, provides exciting
new opportunities in this area.
The planned diversification of Future's portfolio in the US continued with
the launch of music magazine, Revolution in July, which exceeded any
previous Future launch advertising revenues. Total Movie in September and
T3 in October will continue the process. In November, Future will take a
further significant step along this diversification path with the launch
of Fuse, a new monthly lifestyle magazine extension of Business 2.0.
France
2000 1999
Print Print
#m (pro forma) Total Total % change
--------------------------------------------------------------------------
Revenues 10.8 10.7 0%
Operating (loss)/profit (0.1) 0.4 -
Underlying Profit 0.7 1.0 (30%)
--------------------------------------------------------------------------
Four promising launches in May and June have offset the games sector
decline, resulting in flat revenues for the period. All four have begun
well, particularly Jeux Video achieving Future France's highest ever
launch advertising revenue and circulation over 100,000.The launch of
Future Music illustrates continuing diversification away from pure
computing and games titles.
As a consequence of the significant launch activity in the first half and
the continued development of the publishing team in France, we have
decided to delay the planned launch of Business 2.0 from November this
year until January 2001. This will have an impact on revenues for the
year, and a high proportion of the costs associated with this major launch
will be incurred in the second half. We are confident that the launch will
mirror the success elsewhere with the brand in Europe.
Italy
2000 1999
Print Print
#m (pro forma) Total Total % change
--------------------------------------------------------------------------
Revenues 6.5 7.8 (17%)
Operating profit 1.2 1.5 (20%)
Underlying Profit 1.4 2.0 (30%)
--------------------------------------------------------------------------
The relative importance of the computer games sector within Future Italy's
portfolio has led to a more significant impact for this business than for
other parts of the Group. Games comprise approximately 43% of the Italian
business by sales.
The second half will see the start of Future's diversification in Italy,
with the launch of T3 in August and Tutto DVD? in October. We have
brought forward our plans for the launch of Business 2.0 in Italy from
2001 to October, and are already well ahead of our advertising launch
targets. Nonetheless, our largest-ever launch in Italy will naturally
incur substantial costs this year.
Germany
2000 1999
Print Print
#m (pro forma) Total Total % change
--------------------------------------------------------------------------
Revenues 3.1 - -
Operating loss (3.0) (0.1) -
Underlying Profit (1.5) - -
--------------------------------------------------------------------------
The business is at an early stage of development and will require
continued investment over the next few years. Revenues were #3.1m for the
first six months of 2000.
The August launch of Business 2.0 is extremely promising, with advertising
revenue ahead of original expectations. Together with the March launch of
T3, this reflects two of Future's strategies: rolling out strong successes
through the Group, whilst expanding beyond the games market.
As a consequence of disappointing Dreamcast console sales, we have
resigned the licence to publish Offizielle Dreamcast Magazin and will
focus our attention further on developing the rest of the games portfolio.
This will be strengthened in the coming months, with the launch of PSM2
magazine ahead of the launch of PlayStation2. Additionally, new launch
Kids Games has begun promisingly, with initial copy sales in excess of
100,000.
Internet
2000 1999 %
#m (pro forma) USA Europe Total Total change
--------------------------------------------------------------------------
Revenues 1.9 0.5 2.4 0.4 500%
Operating loss (2.5) (1.1) (3.6) (0.9) 300%
--------------------------------------------------------------------------
Future's Internet activities and business models continue to perform
strongly, running ahead of forecast on both audience-build and revenues.
Revenues were up 500% to #2.4 million and monthly unique visitor numbers
increased to 6.5 million in August, up 210% on the 2.1 million reported in
June last year and 35% up on the number announced in June 2000. Monthly
page impressions were 87 million.
The strongest growth engine has been the US DailyRadar network. The e-
commerce agreement this site has with leading US games retailer Babbages
is starting to develop good revenues, with up to 3,000 e-commerce clicks
every day to Babbages Gamestop service. In June we launched the
DailyRadar.co.uk network in the UK, which now attracts 600,000 unique
visitors per month, and the network was further extended with the launch
in Germany under the name PowerPlay.de. DailyRadar will also be launched
in Italy in the second half of the year.
Future has continued to make occasional early stage equity investments in
Internet businesses where there is a link with our activities, an
attractive business model and an impressive management team. These are
shown in the balance sheet at a cost of #4.1m. Where our investment is
sufficient for them to be accounted for as associates, a share of losses
have been recognised. In the period this amounted to losses of #0.3m.
MORE TO FOLLOW
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